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Tuesday, November 4, 2003

SCOForum Slides vs. SCO's Memorandum -- A Closer Look

In SCO's Memorandum of Law in Opposition to IBM's Motion to Compel Discovery, there is one section entitled "IBM's Characterization of the Presentation at the SCO Trade Show is False and Misleading."

Let's examine this one paragraph and see if that is true or if the shoe is on the other foot.

In order to do that, we'll be comparing what SCO wrote in its Memorandum with the slides in SCO's SCOForum presentation.

In order to follow along, you will likely wish to look at the slides themselves. If you go here you can find them as a Powerpoint presentation, and they can be viewed here as html. You can alternatively go to this page where we covered IBM's Motion to Compel Discovery, and you will find links to the Motion, the Memorandum of Law in Support, and all the exhibits, including the SCOForum slideshow.

I will present text from the slides as appropriate so you can follow along without skipping back and forth. First, here is the paragraph from the Memorandum of Law we will be looking at carefully, and I have highlighted the points we will address most particularly to compare with the slides:

"1. IBM's Characterization of the Presentation at the SCO Trade Show is False and Misleading.

"Throughout its memorandum, IBM makes repeated reference to SCO's trade show and a particular presentation about SCO's contractual rights made at that trade show. IBM incorrectly asserts that during that presentation, SCO identified 'four categories of alleged "misappropriation" by IBM: (1) literal coping; (2) derivative works; (3) obfuscation; and (4) non-literal transfers.' (IBM Mem., p. 6)(parentheticals omitted). The slides from the SCO Forum trade show relied upon by IBM (IBM Mem., Exhibit F), corroborate that SCO has not publicly made any such allegation against IBM. Slide 8, which is the only one to contain the terms 'literal copying,' 'derivative works,' 'obfuscation,' and 'non-literal transfers' does not mention IBM, or indeed anyone else. In fact, Slide 8 does not mention trade secrets at all, but rather illustrates SCO's bases for a potential copyright infringement action. What makes IBM's use of this trade show material particularly misleading to this Court is that the code in question identified by SCO at the trade show and elsewhere was code from a licensee other than IBM. In fact, it was widely reported after the trade show that the example of improperly contributed code was from SGI, which has since publicly acknowledged its improper contribution. It is inconceivable that IBM is unaware that the code identified by SCO in its presentation was from SGI, not IBM. In any event, as code contributed by another licensee, it should be obvious to IBM that, despite its demands for this code, the identity of such code is not responsive to any of IBM's interrogatories."

As you can see, they accuse IBM of misleading the court. Let's see who is misleading whom, and we'll take it a piece at a time and look at the slides as we go along. First, SCO claims that the presentation was about contractual rights:

"Throughout its memorandum, IBM makes repeated reference to SCO's trade show and a particular presentation about SCO's contractual rights made at that trade show."

So, it's about contractual rights overall, according to SCO. However, a little further down, SCO characterizes Slide 8 as being a list of SCO's bases for a potential copyright infringement action:

"Slide 8 does not mention trade secrets at all, but rather illustrates SCO's bases for a potential copyright infringement action."

They appear to be distinguishing Slide 8 from the rest of the presentation, saying this particular slide wasn't about contractual matters or trade secrets, rather about copyright, which they haven't accused IBM of. And in fact they pointedly say that IBM is not mentioned at all on Slide 8, and that further it's the only slide that mentions the four infringement terms IBM says SCO has accused them of and which SCO here is denying having ever publicly accused IBM of having done:

"IBM incorrectly asserts that during that presentation, SCO identified 'four categories of alleged "misappropriation" by IBM: (1) literal coping; (2) derivative works; (3) obfuscation; and (4) non-literal transfers.' (IBM Mem., p. 6)(parentheticals omitted). The slides from the SCO Forum trade show relied upon by IBM (IBM Mem., Exhibit F), corroborate that SCO has not publicly made any such allegation against IBM. Slide 8, which is the only one to contain the terms 'literal copying,' 'derivative works,' 'obfuscation,' and 'non-literal transfers' does not mention IBM, or indeed anyone else. In fact, Slide 8 does not mention trade secrets at all, but rather illustrates SCO's bases for a potential copyright infringement action."

This may come as quite a surprise to those of us who have followed this story closely from the beginning, because it feels like that's all we've heard SCOfolk say and imply for about seven months. If you look at Slide 8, it's true that IBM is not mentioned by name on that slide. Here is the text:

"8. SCO UNIX System V Copyright Infringements in Linux®

"Linux is a registered trademark of Linus Torvalds

"Contracts, Agreements, and the Law

"Non-literal transfers

"Methods, structures and sequence from System V contributed to Linux kernels 2.4+

"Obfuscation

"Copying, pasting, removing legal notices, reorganizing the order of the programming structures

"Derivative Works

"Modifications of System V created by vendors contributed to Linux kernels 2.4+ in violation of contracts

"Literal Copying

"Line-for-line code copied from System V into Linux kernels 2.4+"

They are telling the judge that this slide is only about copyright, apparently so as to claim it couldn't be an accusation about IBM. But what does the slide itself say? -- "Contracts, Agreements and the Law." So is it really only about copyright? What did the author of the slide believe? As for their claim that this is the only slide to mention these four terms, this is a rather slick argument. It is true it is the only one to mention all four together on the same slide, but as you go through the slides one by one, you will see that in fact this Slide 8 is a summary of the four terms, but subsequent slides, beginning with Slide 9, mention each term in turn, and the subsequent slides give examples of each of these four terms, and the later slides do mention IBM by name, specifically on Slides 21 and 22.

"Copyright (c) International Business Machines Corp., 2001 This program is free software; you can redistribute it and/or modify it under the terms of the GNU General Public License as published by the Free Software Foundation; either version 2 of the License, or (at your option) any later version. This program is distributed in the hope that it will be useful, but WITHOUT ANY WARRANTY; without even the implied warranty of MERCHANTABILITY or FITNESS FOR A PARTICULAR PURPOSE. See the GNU General Public License for more details. You should have received a copy of the GNU General Public License along with this program; if not, write to the Free Software Foundation, Inc., 59 Temple Place - Suite 330, Boston, MA 02111-1307, USA. Author: Dipankar Sarma (Based on a Dynix/ptx implementation by Paul Mckenney )

This Slide 21, then, is an example they offer in the category of "derivative works" and IBM's name is used in the title. If Slide 8 is only about copyright when it mentions "derivative works" and it has nothing to do with IBM, what is this Slide 21 talking about? What about the next slide, Slide 22? It's an example of "non-literal transfers", another of the 4 terms listed in Slide 8, and again IBM is mentioned by name:

"Are you concerned with increase in memory used per counter Here? I suppose that must not be that much of an issue for a 16 processor box.... Nope, I'm concerned that if this mechanism is to be used for all counters, the improvement in cache coherence might be less significant to the point where the additional overhead isn't worth it.

"...which may be true for 4-ways and even 8-ways but when you get to 32-ways and greater, you start seeing cache problems. That was the case on AIX and per-cpu counters was one of the changes that helped get the spectacular scalability on Regatta.

"Niels Christiansen
"IBM LTC, Kernel Performance

"Non-Literal Transfers [^] Methods and Concepts"

Whether this email can legitimately be used to prove an infringement is another discussion, but it is clear they used it for that purpose, and they pointed at an IBM employee. "Non-literal transfers" is one of the four terms on Slide 8, and this is an example of such a transfer, according to SCO, and yet they tell the judge that Slide 8 isn't about IBM?

Derivative works are also the topic addressed on Slide 18, "Use is Infringing if Scope of License Grant for Derivative Work is Exceeded", and Slide 19, "Examples of Significant Infringing Derivative Works Contributions to Linux 2.4/2.5", both listing NUMA, RCU, JFS, and XFS, and one adds NUMA and the other adds "Schedulers, Linux PPC 32- and 64-bit support, and Enterprise Volume Management System". Obviously, IBM is at a minimum under a cloud in this list. And Slide 20 lists exact numbers of files and lines of code under the title "Derivative Works" for RCU, NUMA, JFS, SFX, and SMP for a precise total of 1,549 files and 1,147,022 lines. Maybe more than a cloud, considering what Aberdeen Group analyst Bill Claybrook wrote SCO told him:

"One example of derivative code that SCO says IBM has released to Linux is IBM's AIX journaling file system (JFS) . . . Two other examples of derivative code that SCO says IBM has released to Linux is NUMA (nonuniform memory access) code and RCU (read, copy, and update) code developed by Sequent prior to IBM's acquisition of Sequent in 1999."

What about the other two terms on Slide 8, line-by-line copying and obfuscation? Let's take a look. Literal copying is handled on several slides, not just one. Slides 9-14, to be exact. SCO's assertion is that the code they showed later turned out to be SGI code, not IBM, so IBM has no reason to ask for SCO to hand it over in discovery. But if you look at the slides titled "Literal Copying", each one says this: "Line by Line Copying [~] One Example of Many", so SCO is pretending there was only one code example used at the slide show but we see several examples and in any case, the examples used were presented as just a sample of many others SCO could show. IBM is asking to see all of them, not just the sample code that turned out to be SGI code.

Obfuscated copying is addressed on Slide 15, but not being a programmer, I'm not qualified to analyze this slide. Others have already done so. With regard to the code examples later turning out not to be IBM code, the issue isn't what they turned out to be, but what SCO represented them to be at their slide show. We presented news articles of the show in our article on Saturday, SCO Tells IBM: No, You Show *Your* Code First that indicated that what SCO representatives said at the show was that IBM was guilty of infringement, and that was what attendees expressed their understanding was from the presentation. So we need not cover that ground again here, except to repeat this small example:

"At the SCO Forum on Monday, the company pulled out its latest weapon: lines and lines of disputed code that were allegedly copied from SCO's Unix into IBM's version of Linux. The company claims that IBM illegally copied Unix code into its version of Linux . . . "

But that isn't the only time SCO has accused IBM of infringing their IP. They accused IBM of directly copying their System V code into Linux, according to two news articles, first one in MozillaQuest, which quoted analyst Bill Claybrook as saying SCO told him IBM was a violator:

"I don't have a list of any of the alleged violators, except
SCO did say that IBM has copied Unix System V code into Linux. I personally find that hard to believe because IBM has one of the best screening processes of any major supplier for making sure that code does not move into Linux. And SCO said no to IBM's copying the first time I asked the question and then several hours later changed their answer to the one that I just gave."

"'I specifically asked SCO if they had any evidence that IBM directly copied System V source code into Linux. The reply was no,' Claybrook wrote in his report. 'SCO has subsequently changed that reply to, "We have that code but we have not presented it at this time."'

"When asked if the confusion about this issue is odd, given that this is the central tenet of SCO's lawsuit against IBM, Claybrook agreed. 'Whenever I asked the question, Chris Sontag, the VP there, told me no,' Claybrook said. 'But then I got an e-mail 8 to 10 hours later from Blake Stowell, director of PR, that said they had "misspoken" -- they did have evidence that IBM had directly copied code.'"

Here's what Darl McBride said on 07/03/2003 according to The Register:

"IBM has taken our valuable trade secrets and given them away to Linux."

In the press release SCO put out when it "terminated" IBM's AIX contract, McBride said IBM was continuing to "violate our source code". And SCO's attorney Mark Heise said:

"Through contributing AIX
source code to Linux and using UNIX methods to accelerate and improve Linux as a free
operating system, with the resulting destruction of UNIX, IBM has clearly demonstrated its
misuse of UNIX source code and has violated the terms of its contract with SCO."

"In the last 18 months, we found that IBM had donated some very high-end enterprise-computing technologies into open-source. Some of it looked like it was our intellectual property and subject to our licensing agreements with IBM. Their actions were in direct violation of our agreements with them that they would not share this information, let alone donate it into open-source. We have examples of code being lifted verbatim.

"And IBM took the same team that had been working on a Unix code project with us and moved them over to work on Linux code. If you look at the code we believe has been copied in, it's not just a line or two, it's an entire section -- and in some cases, an entire program."

When SCO wrote that they have never accused IBM publicly of the four categories of alleged misappropriation, literal copying, derivative works, obfuscation, and non-literal transfers, was that truthful? The accusation ended up in Claybrook's report, and SCO not only didn't correct it, it corrected Sontag's orginal denial that they had proof of IBM's literal copying.

And they did it privately too, according to Ian Lance Taylor's report of his visit to look at the code, which report SCO never corrected to the best of my knowledge and, if I remember correctly, I believe McBride actually referred to this account in a teleconference. During his visit, he took notes and says that this is what SCO (mostly Chris Sontag) told him:

"SCO has a list of about 20 IBM engineers who are, it claims, using AIX methods in Linux. SCO claims that some of these engineers literally are looking at AIX source code as they discuss Linux issues and making recommendations based on the AIX code.

"SCO claims this is inappropriate because everything built on top of AIX or using methods developed in AIX is really a derived work of Unix. As we talked, I realized this is a key part of SCO's argument. SCO claims that anything built on top of Unix is itself a derived work of Unix. I will discuss this further below.

"SCO said that besides IBM, Sequent has contributed code to Linux which is derived from Unix. Sequent is now a subsidiary of IBM.

"SCO also claims that some of the derivative works IBM contributed to Linux include NUMA, RCU, JFS, SMP, performance measurement and improvements, serviceability, scheduler improvements, LinuxPPC 32 and 64 bit support, logical partition support. Sontag moved on to the next slide before I typed down the rest of the list."

Finally, about the SGI matter, SCO characterizes what happened like this:

"What makes IBM's use of this trade show material particularly misleading to this Court is that the code in question identified by SCO at the trade show and elsewhere was code from a licensee other than IBM. In fact, it was widely reported after the trade show that the example of improperly contributed code was from SGI, which has since publicly acknowledged its improper contribution."

Here's what SGI actually said about the code:

"When a question was raised by the community earlier in the summer about the ate_utils.c routine, we took immediate action to address it. We quickly and carefully re-reviewed our contributions to open source, and found brief fragments of code matching System V code in three generic routines (ate_utils.c, the atoi function and systeminfo.h header file), all within the I/O infrastructure support for SGI's platform. The three code fragments had been inadvertently included and in fact were redundant from the start. We found better replacements providing the same functionality already available in the Linux kernel. All together, these three small code fragments comprised no more than 200 lines out of the more than one million lines of our overall contributions to Linux. Notably, it appears that most or all of the System V code fragments we found had previously been placed in the public domain, meaning it is very doubtful that the SCO Group has any proprietary claim to these code fragments in any case.

"As a precaution, we promptly removed the code fragments from SGIs Linux website and distributed customer patches, and released patches to the 2.4 and 2.5 kernels on June 30 and July 3 to replace these routines and make other fixes to the SGI infrastructure code that were already in progress at SGI. Our changes showed up in the 2.5 kernel within a few weeks of our submission, and the 2.4 changes were available in the production version of the 2.4 kernel as of August 25 when the 2.4.22 kernel was released. Thus, the code in question has been completely removed.

"Following this occurrence, we continued our investigation to determine whether any other code in the Linux kernel was even conceivably implicated. As a result of that exhaustive investigation, SGI has discovered a few additional code segments (similar in nature to the segments referred to above and trivial in amount) that may arguably be related to UNIX code. We are in the process of removing and replacing these segments.

"SCO's references to XFS are completely misplaced. XFS is an innovative SGI- created work. It is not a derivative work of System V in any sense, and SGI has full rights to license it to whomever we choose and to contribute it to open source. It may be that SCO is taking the position that merely because XFS is also distributed along with IRIX it is somehow subject to the System V license. But if so, this is an absurd position, with no basis either in the license or in common sense. In fact, our UNIX license clearly provides that SGI retains ownership and all rights as to all code that was not part of AT&Ts UNIX System V."

Does that match what SCO said to Judge Kimball about SGI and this code? No? One thing I think we can all agree on. Someone is being false and misleading. I will leave it up to you to decide who.

Now, about the "it's not about trade secrets", here is how SCO characterized its lawsuit against IBM in its SEC 10Q filing for the quarter ending April 30, 2003:

"On March 6, 2003, the Company filed a complaint against IBM alleging breach of contract, misappropriation of trade secrets, tortious interference, and unfair competition. The complaint centers on IBM[base ']s activities regarding the UNIX operating system that underlies both the Company[base ']s UNIX-based operating systems and IBM[base ']s AIX, its UNIX-based operating system. The complaint alleges that IBM obtained information concerning the UNIX source code from the Company and inappropriately used and distributed that information in connection with its efforts to promote the Linux operating system." [emphasis added]

And IBM is misleading the court and mischaracterizing the case as being about trade secrets? They said themselves that's what it was about. And they never publicly accused IBM? SEC filings are public. Interviews with the media are public. The SCOForum slide presentation was public.

Maybe the explanation is as simple as this snip from an exclusive interview McBride gave:

"In an exclusive interview, McBride told vnunet.com that SCO was about to embark on the discovery process of its legal case, when it looks for material related to the case.

"'As we move into discovery, this will be very nice for us because now we get to go in and talk to all their people, their customers. We get to really shake things up and get in to find out what really is going on over there,' he said.

"McBride claimed that SCO has the right to audit IBM's customers. 'We have other rights under the contract we are looking at. For example, we can audit IBM customers. SCO has audit rights on its customers,' he said.

"'The reality is that we are going into discovery right now and that might be the vehicle to be able to investigate what we need there anyway.'"

Normally, when I write about the SCOSaga, I try to be entertaining, but I have to confess to being old-fashioned enough that I can't find anything funny or witty to say about this story. You just don't mislead a judge. I'm shocked, actually. Not in the Casablanca-I'm-shocked-shocked kind of way. I mean I'm really stunned by the slide comparison. I keep thinking, maybe I've misunderstood. Maybe it's written so sharply I've missed something. It's possible. I actually hope so.

I've never worked for an attorney who misled a judge. This may amaze those of you who hate lawyers, but it's true. The whole legal system is based on honor, corny as that might sound. That is one of the things I like about it. I've seen lawyers lie to their wives, sadly, to their creditors, maybe, to their clients even, but never to a judge.

I guess it's true, what Lily Tomlin said. No matter how cynical you get, it is impossible to keep up.

4:13:38 AM

SCO Tells IBM: No, You Show *Your* Code First

It's time to analyze SCO's Memorandum of Law in Opposition to IBM's Motion to Compel Discovery, which we posted as text yesterday. If I had to characterize it in a brief sentence or two, the sentence would be that SCO tells the court, "How are we supposed to know what code IBM misappropriated? It's up to them to prove our case for us. It's not for us to hand over the code; it's up to them to show us every bit of code they ever donated to Linux. Then, we'll go over it and find whatever we can find. And anyway, we've given them plenty of stuff just today, so who needs a motion to compel? Let's just forget the whole thing."

In short, they don't want to show the code this exact minute.

They bad mouth IBM some more, tell a fib or two, by my reckoning, and then sit down, saying the motion should be denied. Let's go over the document piece by piece.

"It has been said that things have both an ostensible and a real reason. Ostensibly, IBM filed its motion to Compel to force SCO to answer interrogatories and produce documents because it had failed to do so. The reality, however, is that SCO not only timely responded to IBM's discovery requests, it then engaged in weeks of lengthy conversation, correspondence, and emails to resolve and clarify discovery issues and ultimately agreed to supplement its responses. But supplemental responses were not all that IBM was seeking. If that were the case, IBM would have waited until today, when supplemental responses were promised and were in fact served. No, what IBM really desired was a forum within which it could construct its stilted and inaccurate mischaracterization of SCO's claims, behind which it could hide its own failure and refusal to provide meaningful discovery responses. As detailed below, IBM's motion is without merit and should be denied."

Here SCO tells the judge that there is no need for any Motion to Compel. They told IBM they'd give them their supplemental answers (that they should have given them from the beginning but didn't until after "weeks of lengthy conversation, correspondence, and emails" made them agree to do it) by today. We did, so why did they file a Motion to Compel? There are pretend reasons used as a cover, they say, and then the real reason. And the real reason was so IBM could have a forum to mischaracterize SCO's claims and so it could hide from their own failure to give SCO meaningful answers to *their* discovery requests. In short, the defense is, IBM hasn't answered all our questions either. Never mind that IBM sent its interrogatories to SCO weeks before SCO sent IBM its interrogatories.

This is certainly a novel way to respond to a Motion to Compel Discovery. SCO has been accused of refusing to turn over information and documents it must turn over, and their answer is, well, they didn't either. Their secondary answer is that although they had not turned the materials over by the date of the filing of the Motion, IBM should have been able to trust SCO's word. Heh heh. IBM already told the judge in its Motion to Compel that the reason they were filing was because SCO had absolutely refused to tell them that they would produce the materials requested, not that they were pokey.

So now, somebody's mistaken or lying. Either SCO told IBM it'd turn over everything IBM asked for by the 23rd, or they refused to commit themselves to doing so, which is IBM's story. So, who do you believe? I think the rest of the document makes clear that when SCO says it offered supplementals, it still didn't mean it would answer all IBM's questions or provide everything IBM asked for.

"At its core, IBM's Motion to Compel Discovery asks for answers to interrogatories that fit its own mischaracterized theories of the case, rather than answers that relate to the actual allegations made by SCO in the Complaint."

IBM is asking us things that don't relate to our theory of the case as presented in our complaint, they whine. IBM has brought into the picture the statements that SCO has made in the press and at SCOsource showings, and SCO is protesting, as well they must, since they have said a lot more in the press than in the court papers, and not everything they have said in public is going to be helpful in court, so they are trying to keep IBM inside their own complaint's four walls. But SCO seems to forget that IBM has a case also. A counterclaim is a case on its own two feet. Even if SCO withdrew its charges, IBM's counterclaims stand. So IBM can ask away with respect to their own claims, just as SCO has asked for and received materials from IBM.

"IBM's baseless arguments begin as an effort to smear SCO and end with a newly created justification of why IBM has failed to provide any meaningful discovery responses itself. While IBM's improper litigation tactics are discussed in detail below, the Motion to Compel can be denied on the simple basis that SCO has actually provided supplemental answers, pursuant to earlier agreement, and this motion is therefore moot."

Here, they say, you can deny their motion, because we've turned over our supplemental answers anyway. But that doesn't really cut it, because IBM in its Motion to Compel already told the judge that SCO had offered the supplemental answers but that the answers they planned to give were not all that IBM has requested. And how can the judge possibly know, from this SCO document, what has actually been turned over and whether it is sufficient? Obviously, he can't, and SCO knows it, but they make the argument anyway.

"THE LAWSUIT

"Contrary to IBM's efforts to recast SCO's Amended Complaint as one limited to trade secret violations, the Amended Complaint contains six counts--the first three counts are for IBM's numerous breaches of licensing agreements. The remaining counts, including Count VI for misappropriation of trade secrets, flow from this transgression and are ancillary to the breach of the license agreements. Thus, notwithstanding IBM's mischaracterization, trade secret misappropriation is not the gravaman of the Complaint (IBM Mem., p. 2), but it is merely one count that recasts one aspect of the injuries caused by IBM's breach. These injuries would exist even in the absence of any trade secret misappropriation."

This is a strange argument. They seem to be saying that they aren't actually talking about trade secrets, at least not primarily. What they are really complaining about is breach of the licensing agreements. I note the plural of agreements, but I don't know exactly what they mean by that. If they mean things like Amendment X and the Side Letter, they are surely sunk, and indeed they never refer to either document. It seems someone has bonked them over the head with great force and now they are suffering total amnesia about those two documents, so what they mean by agreements as opposed to an agreement, we'll have to wait and see. What I'm guessing they mean is the Sequent agreement and the IBM agreement, holding IBM responsible for any breach in the Sequent agreement. They could also be referring to the fact that there have been supposedly many, many agreements over the years. Or it's a Freudian slip of the pen, and they do remember the 1985 side agreement and Amendment X, which well they might, since they themselves attached them to their Complaint as exhibits.

So, trying to parse the logic of their sentence, they are claiming that their accusation of trade secret misappropriation isn't the main part, or gravamen, of their Complaint. Gravamen means the heart of the argument, the part that the case is really all about. They misspell the word, actually, but I've heard Boies is dyslexic, so perhaps he wrote it that way and no one dared to challenge him. IBM is guilty of "numerous breaches of licensing agreements", and counts one through three list them, they say. The rest of the counts are ancillary to counts one through three, showing one of the aspects of the harm SCO maintained as a result of the breaches.

This, of course, makes no sense, but we'll move on, except to note that they don't at all want this case to stand or fall on being able to prove misappropriation of trade secrets, probably because they have no ability to prove IBM is guilty of any such thing. So here they are saying, we were damaged, but we shouldn't have to prove it with respect to trade secret violations. Good luck getting a judge to agree that you don't have to prove one of the claims in your complaint.

"'IBM has been happily giving part of the AIX code away to the Linux community, but the problem is that they don't own the AIX code,' he said. 'And so it's a huge problem for us. We have been talking to IBM in this regard since early December and have reached an impasse. This was thus the only way forward for us.'"

Oh. So which is it? Is this what the case is about or isn't it? And did IBM mischaracterize the case? Did they have no basis for thinking it was about trade secrets being misappropriated? or are SCOfolk speaking with forked, situational tongues?

The problem SCO has is, it has covered the media in press releases and statements for months saying that IBM has done what it now says it wasn't really talking about. They are in a pickle. The code they showed at SCOForum, that they said at the time was proof of IBM's misappropriating their code, turned out to be BSD and maybe SGI code, which IBM had nothing to do with, so they are left with their pants down in front of the judge, and there is a lot of holding newspapers or anything handy in front of embarrassing body parts going on here.

"In its Amended Complaint, SCO alleged that IBM and Sequent (now part of IBM and herinafter collectively referred to as IBM) were licensees of UNIX System V source code ('UNIX'). As part of this license grant, IBM was given certain rights and also agreed to certain restrictions upon its use of UNIX. IBM agreed, for example, that UNIX code and methods would be solely for its own internal business purposes (§ 2.01), [1] that UNIX code and methods would not be used for others and by others (§ 2.05), and that IBM would maintain the code and methods related thereto in confidence (§ 7.06). Similarly, IBM further agreed it would not sell or otherwise dispose of UNIX in whole or in part (§ 7.10). Significantly, IBM also agreed that any modifications or derivative works of UNIX prepared by IBM, would be treated by IBM 'as part of the original Software Product.' (§ 2.01). Thus, all of the foregoing restrictions on UNIX also apply equally to any modifications or derivative works created by IBM. [2]"

Well, now, everything hinges on what you mean by derivative works. But first, the contract itself. As you can see, the amnesia is interfering with their total recall, poor things. I've heard if you tell historic facts to an amnesiac over and over, sometimes their memories return, so let's give it a try.

If they look at their own Exhibit C, attached to their own Complaint, they will find that by means of this Side Letter, IBM was given the right to develop products and services "employing ideas, concepts, know-how, or techniques relating to data processing embodied in SOFTWARE PRODUCTS...provided that the LICENSEE shall not copy any code from such SOFTWARE PRODUCTS...and employees of LICENSEE shall not refer to the physical documents and materials compromising SOFTWARE PRODUCTIONS..."

Got that, SCO? Derivative works are not yours, according to this letter, so long as none of your code is in the derivative work, and the confidentiality requirement is lifted on any such code as well by this letter. And as for trying to lasso every programmer's thoughts and methods and ideas, well, that's just silly. That really would be the end of the software business, because no programmer could ever leave his job and go to work for anyone else unless they gave him a lobotomy first. Maybe just a hard bonk on the head would do, but to be on the safe side, a lobotomy is better.

I know. Maybe they could just kill all programmers who try to leave their jobs. If SCO shows their code to a programmer, they'd have to kill him to make sure their ideas and methods don't escape with him. This news report indicates that SCO is worried about programmers' memories:

"At the time McBride said SCO was concerned that programmers who had signed agreements to see proprietary SCO source code had moved on to other projects and might be incorporating his company's proprietary code into other projects."

They just can't build walls high enough around their precious IP, and these programmers are such brainiacs, they might remember methods even if you get them sloppy drunk, and then who knows who they might whisper their secrets to? So, all in all, I think killing them is best for the bottom line. Shareholders expect you to think pragmatically, after all.

Outsourcing makes available a seemingly limitless pool of underpaid talent that could be used to fill the shoes of the dead coders, like ants that just crawl right over the corpses of their dead comrades and keep marching forward. There is one problem with this plan. You might think you'd never run out of new coders, but I think it'd be like polluting the ocean. At first, it seems you could never accomplish such a monumental task, but somehow mankind has overcome all odds and achieved it. I think they'd find, similarly, that the hordes of Chinese and Indian programmers, at first a seemingly limitless pool of exploitable, cheap labor, in fact are a finite resource, so I guess we can rule that plan out as impractical long-term. OK, no killing off coders who've seen SCO code. But that leaves SCO with its worrisome problem. How to protect its really old, old ideas?

Getting back to planet earth, Section 2 of the letter means, quite simply, that IBM can take code from AIX and give it to someone else, provided that it contains no original System V code. Are they hoping the judge doesn't read? Doesn't know about Exhibit C? It's very puzzling they don't even mention it, unless they have some reason up their sleeve why they don't agree with this interpretation of the side letter.

"Pursuant to these restrictions, IBM agreed that AIX, IBM's 'own version of UNIX' (IBM Mem., p.2 n.1), and Dynix, Sequent's version of UNIX, would be used solely for internal business purposes, would be maintained in confidence, and would not be disposed of in whole or in part. IBM, contrary to these clear and unambiguous limitations on its use of UNIX, including modifications and derivatives thereof, has publicly touted its contributions of AIX and Dynix into Linux, the free, 'open source' operating system that IBM has heavily supported, both financially and technologically. [3] Specifically, IBM improperly contributed these protected UNIX materials into the Linux 2.4 and 2.5 kernels (in lay terms, the 'brain' of the operating system)--a decidedly public disposition of these protected materials. This action is a clear breach of IBM's obligations under the agreements with SCO governing the use of UNIX, and derivatives such as AIX and Dynix."

This is the gravamen of their current claim, then, that IBM was supposed to keep code confidential and instead it made it public by donating it to open source. seems a lame metaphor for kernel. They call it a kernel because the word is, in itself, a description of what it is. But why quibble? And anyway, we want to plow forward, and this is only the end of their preamble. Now comes their actual response to IBM's motion.

"IBM'S MOTION

"IBM's Motion begins with a seven page 'preliminary' statement that makes unfounded attacks on SCO and its counsel. This gratuitous commentary was inserted by IBM in the apparent hope that innuendo and sniping may add weight to its motion. IBM begins by claiming 'SCO has obfuscated its claims to foster fear, uncertainty and doubt about its rights and the rights of others.' (IBM Mem., p. 3). In fact, SCO has done nothing other than assert its contractual and legal rights. [4]"

Heavens to Betsy! Do you mean to tell me IBM has used innuendo and sniping and unfounded attacks? Why, this is an absolute outrage. Call the police.

SCO would never do such a thing, so righteous indignation is understandable and very appropriate for them. You can practically see them shaking with the anger of the upright wronged. Either that, or they hope Judge Kimball doesn't read Groklaw.

"IBM then incorrectly attributes as a purported quote from SCO's counsel that SCO 'doesn't want IBM to know what they [SCO's substantive claims] are.' Even a casual review of the article IBM relies upon (IBM Mem., Exh. C) reveals that no such statement was made by SCO's counsel. Indeed, the one paragraph 'article' is nothing more than a gripe by a reporter who failed to obtain information from counsel about the case. More importantly, SCO's counsel, through communication with IBM's counsel and through its Amended Complaint, has made perfectly clear to IBM what its substantive claims are. That IBM chooses to ignore the statements and the actual claims detailed in the Amended Complaint does not give rise to a motion to compel. [5]"

Didn't they get the news that Groklaw has a searchable database of quotations? As lawyers say to witnesses on the stand when they pretend they have forgotten something, would this refresh your memory? This is what the reporter Maureen O'Gara wrote about what she described in the March 21, 2003, article as a charming conversation with Mark Heise by phone:

"We had a charming conversation with the lawyer who's handling the SCO v IBM suit for SCO, a guy by the name of Mark Heise in the Florida office of Boies, Schiller & Flexner. His wife is expecting their first child any minute now. It's safe to say we now know more about his wife's pregnancy than we do about any substantive claims SCO can make against IBM. Heise claims to have them - and isn't proposing to go on discovery fishing expedition - but doesn't want IBM to know what they are. At the time, and this was a week ago, he said he had spent more time talking to us than to IBM, that there had been no contact."

As you can see, she wasn't griping about not getting any info about the case. She was saying that Heise told her something, and what he told her was that he didn't want IBM to know what SCO's claims were. Ms. O'Gara is a reputable reporter. And SCO is misrepresenting what she reported.

Additionally, there is this confirmation of Heise's position in a quotation by Darl McBride back in January:

"'We feel very good about the evidence that is going to show up in court. We will be happy to show the evidence we have at the appropriate time in a court setting,' McBride said. 'The Linux community would have me publish it now, (so they can have it) laundered by the time we can get to a court hearing. That's not the way we're going to go.'"

"The 'Preliminary Statement' repeats over and over that SCO purportedly has failed to answer the series of questions arising from the 'trade secrets and any confidential or proprietary information that Plaintiff alleges or contends IBM misappropriated or misused.' SCO, however, previously provided appropriate answers. Nonetheless, SCO has filed supplemental answers to interrogatories, served today consistent with its agreement to do so, which specify the source code files that contain the information IBM and Sequent agreed to maintain as confidential and proprietary."

This is a trick answer. Here, SCO says IBM is accusing them of not answering their questions, but SCO says they did, too, answer. And then they agreed to answer them better and have now done so, so as of today, SCO has provided IBM with the specifics about which files they allege are infringing....Nah. Just checking to see if you were still awake. They don't say any such thing, and they didn't turn over the info IBM asked for. They told them instead exactly which source code files "contain the information IBM and Sequent agreed to maintain as confidential and proprietary." That's not the same thing at all. That would be every line of code, if you stop and think about it. It's all, according to them, confidential and proprietary, even programmers' thoughts. And, excuse me, but that isn't what IBM asked for. What they asked for, as SCO acknowledges, is "to answer the series of questions arising from the 'trade secrets and any confidential or proprietary information that Plaintiff alleges or contends IBM misappropriated or misused.'"

This is SCO dancing as fast as it can. It wants the judge to think they have complied when they have not. They still haven't shown the code they think is infringing.

"Much of this information was developed by IBM and Sequent and, pursuant to their license agreements with SCO, both IBM and Sequent agreed it would be held as confidential. As a result, some of the information IBM requested will be known only to IBM, so the specifics of who at IBM was involved with improperly contributing this code to the public, how they did so, and the like will not be known until SCO gets the information from IBM, the party who contributed the protected materials in violation of its contractual obligations.

"Such a situation does not create grounds to grant a motion to compel. As the court explained in a case cited by IBM, O'Connor v. Boeing N. Am., Inc. 185 F.R.D. 272,281 (C.D. Cal. 1999), a toxic tort case, 'the clear inference from the reponse is that [respondents] do not yet know exactly how they were exposed to contaminants, but exposure occurred. When additional information is known to [respondents], they must supplement their response under Rule 26(e).' Likewise, SCO is presently attempting to ascertain, through the interrogatories and requests for production it has propounded to IBM, the associated background information and details that it needs to prepare its case as well as to fulfill IBM's request. Thus, to the extent certain portions of the answers are not currently available, they can be supplemented upon receiving the information from IBM, the party that improperly made the contributions to Linux in violation of its obligations to SCO and the party that presumably can identify who at IBM made the unlawful contributions to Linux, to whom they were made, when they were made, and other related details. To date, however, IBM has failed to provide this information, despite its agreement and obligation to do so."

Huh? They don't know of any infringing code, but they just know it must be in there somewhere? They want IBM to show them the smoking gun so SCO can build its case? Their argument is: we can't tell you what code is infringing, because you haven't told us yet. IBM wrote the code themselves, so we don't know what they wrote, but it must be ours. We hope to find it after IBM answers our interrogatories, and if we do, then we'll tell IBM where it is. On that basis, they say the motion need not be granted.

What happened to the spectral analysts and the MIT mathematicians and the physicists who deep-dived, as McBride put it, and analyzed the code and found "millions" of lines of infringing code? Just a couple of days ago, McBride said the same thing in a French interview, and now they don't know of any specific lines of infringing code?

This is a new tack. They use a toxic tort case, meaning someone got hurt by a toxin of some kind, and say, "That's us, your honor. We've been hurt, but we aren't sure yet exactly where."

"We're educating the public in general that, well, there is in fact infringing code, both direct line for line and obfuscated code, derivative works, non-literal -- it's there. [We] just don't want the rest of the world to believe that it's not [there], that this is some sort of smoke and mirrors. It's not."

Now, they say it *is* smoke and mirrors, and the smoke won't clear without IBM stepping up to the plate and showing where their crime is hidden. SCO is complaining that IBM did not keep the code confidential, yet they can't find it because IBM kept it so confidential SCO can't locate it. But here is what they told attendees at SCOForum:

"Those prepared to sign a non-disclosure agreement were treated to select chunks of code that SCO claims were copied from its Unix operating system into IBM's version of Linux. . . .

"At the SCO Forum on Monday, the company pulled out its latest weapon: lines and lines of disputed code that were allegedly copied from SCO's Unix into IBM's version of Linux. The company claims that IBM illegally copied Unix code into its version of Linux, and it's warning Linux customers that they may be violating copyright by using the operating system without paying SCO. It's also recently rolled out a new licensing plan that would require Linux customers to pay between $199 (£125) and $699 per computer. . . .

"As of the end of the day on Monday, more than 150 had seen the code presentation, which the company said includes a small portion of the infringing code it's found so far. Sontag said the company has uncovered more than a million lines of copied code in Linux, with the help of pattern recognition experts.

"A compelling case? According to those who viewed the code at SCO Forum, company representatives showed off several categories of code that allegedly infringed its copyrights, including some lines that appeared to be directly copied, some that were derivative works, and some that were obfuscated, such as code from which legal disclaimers had been removed. . . . .

"After viewing the code, Don Price, the general manager of Price Data Systems, said he was surprised at the volume that was allegedly copied. 'It's compelling,' he said. 'Some people were either extremely sloppy, or copied and thought no one would go after them.'"

"Neil Abraham, with SCO reseller Kerridge Computer, said SCO made the right decision to pursue IBM. 'I think they've got a very firm case,' he said, after looking at the code. 'It's not just one line. It's huge chunks.'"

OK. That was then. This is now. And now, SCO with a straight face tells the judge they just don't know where infringing code might be hiding. That's why they haven't turned it over.

"As noted earlier, because SCO long ago indicated it would supplement its answers to interrogatories, IBM's motion should be denied as premature. Having provided the supplemental answers, IBM's motion is also rendered moot. Under these circumstances, normally there would be no further reason to address any of the remaining statements in IBM's memorandum. Here, however, IBM has advanced two arguments that so egregiously distort the facts and circumstances of this case that SCO is forced to respond."

This is just the sum-up of why they feel the motion should be denied: it's too soon, they've already provided supplemental answers, and IBM's motion is moot. If you weren't convinced already, this won't do it either. But now they launch into a counterattack on IBM. They are "forced" to do it because of two arguments IBM has made.

"1. IBM's Characterization of the Presentation at the SCO Trade Show is False and Misleading.

"Throughout its memorandum, IBM makes repeated reference to SCO's trade show and a particular presentation about SCO's contractual rights made at that trade show. IBM incorrectly asserts that during that presentation, SCO identified 'four categories of alleged "misappropriation" by IBM: (1) literal coping; (2) derivative works; (3) obfuscation; and (4) non-literal transfers.' (IBM Mem., p. 6)(parentheticals omitted). The slides from the SCO Forum trade show relied upon by IBM (IBM Mem., Exhibit F), corroborate that SCO has not publicly made any such allegation against IBM. Slide 8, which is the only one to contain the terms 'literal copying,' 'derivative works,' 'obfuscation,' and 'non-literal transfers' does not mention IBM, or indeed anyone else. In fact, Slide 8 does not mention trade secrets at all, but rather illustrates SCO's bases for a potential copyright infringement action. What makes IBM's use of this trade show material particularly misleading to this Court is that the code in question identified by SCO at the trade show and elsewhere was code from a licensee other than IBM. In fact, it was widely reported after the trade show that the example of improperly contributed code was from SGI, which has since publicly acknowledged its improper contribution. It is inconceivable that IBM is unaware that the code identified by SCO in its presentation was from SGI, not IBM. In any event, as code contributed by another licensee, it should be obvious to IBM that, despite its demands for this code, the identity of such code is not responsive to any of IBM's interrogatories."

Sigh. This is like when your kid gets such a knot in his shoe, you hardly know where to begin. First, you just read the SCOForum news report. Is SCO being truthful in saying the slides don't say IBM on them? Yes. But did they verbally say all the things they are now denying? According to the news reports, they did.

"Nevertheless, McBride and other attorneys including Mark Heise, another hired gun from Boies, Schiller & Flexner LLP, presented SCO's pending case against IBM, this time to a jury of hundreds of Unix resellers and solution providers gathered at SCO Forum 2003.

"The cameras flashed when SCO attorneys briefly highlighted on screen alleged examples of "literal" copyright infringement and improper use of derivative works of Unix System V code that appear in Linux 2.4X and Linux 2.5X.

"While it was difficult to ascertain the exact code being shown on screen, attorneys pointed to exact copying of some code from Unix to Linux and claimed that IBM improperly donated almost a million lines of Unix System V code to the Linux 2.4x and Linux 2.5x kernel that infringe on its Unix System V contract with SCO -- and SCO's intellectual property."

Those reporting and those attending agree with IBM that SCO accused them. So is SCO being truthful to this judge? Like a car salesman, maybe. They say they have not publicly made any such allegation against IBM.But the news stories prove otherwise.

Folks, I mean no disrespect, but don't these allegedly religious men pray at night? If so, how do they raise their eyes to heaven?

Judge Kimball strikes me as an honorable man, so maybe there is hope that he will be shocked and disturbed that SCO has the unmitigated gall not only to lie about what it said but to attack IBM for "misleading" the court by pointing out that SCO said it and asking them for proof of the public accusations. Why, the whole world knows it was SGI, they disingenuously say, who wrongfully put that code in, because they have admitted it.

First, that isn't what SGI said at all. They said the code appeared to be most, if not all, public domain code. Anyway, whatever happened afterwards doesn't change what SCO said at the show. SCO accused IBM publicly and now they want to pretend they didn't say it. And what they said at the show wasn't the only time they have made such accusations against IBM. Just check our quote database.

"2. IBM's Claim It Will Not Respond to Discovery Until It Receives Supplemental Answers is Belated and Improper.

"Most problematic is IBM's claim that it cannot repond to discovery until SCO supplements its answers to interrogatories. SCO's discovery requests directed to IBM have been outstanding for four months. Raised for the first time in this motion, IBM's manufactured excuse for failing to respond is absurd and contrary to its previous representations that it will provide the discovery requested.

"Now, after mischaracterizing the breadth of SCO's complaint as detailed above, IBM suddenly claims '[w]hether a given document ultimately will be responsive to SCO's extensive requests turns on which trade secrets SCO identifies as being at issue in this case.' (IBM Mem., p 18). No, it does not. The example used by IBM to support its recently created excuse for not providing any additional documents since October 2, 2003, makes clear that whatever may be a trade secret does not limit IBM's obligations to provide full and fair discovery responses. Specifically, IBM points to SCO's Document Request number 11 and claims it needs guidance on the trade secret issue before it can repond. Request 11 is as follows: 'All contributions made without confidentiality restrictions by IBM or anyone under its control including, but not limited to, source code, binary code, derivative works, methods and modifications to Open Source Development Lab, Linus Torvalds, Red Hat or any other entity.' There is nothing on the issue of trade secrets that this Court needs to 'clarify' for IBM to produce this information. As noted earlier, IBM contractually agreed to maintain certain information as confidential and proprietary. That includes all of UNIX System V, UnixWare, IBM's verison of UNIX, called AIX, and Sequent's version of UNIX, called Dynix. IBM cannot unilaterally alter SCO's claims by pretending the clear and unambiguous allegations in the Complaint and contractual obligations detailed therein do not exist. IBM must provide the requested documents and cannot avoid or alter its production obligation through the filing of a Motion to Compel that improperly seeks to alter the claims as pleaded by SCO."

This is really low. IBM has told the judge that it can't respond to SCO without knowing what they are accused of specifically. SCO now says this is "absurd", as if it were a novel notion that an accused defendant has the right to know the charges against him. And all these arguments are irrelevant to this motion. SCO didn't bring a Motion to Compel, although knowing SCO, no doubt they'll try that next. This is IBM's Motion to Compel, not the reverse. Why SCO's attorneys inserted all this stuff about IBM not answering is a genuine mystery. It won't mean a thing to anyone, and I'm sure they must know it, unless they are playing to the peanut gallery.

SCO has asked IBM to provide all the code it has ever donated to Linux. It makes a big fuss about their failure to do that. Why, the nerve of IBM asking SCO to reveal what trade secrets it has allegedly violated. IBM is saying, you can't just go fishing. Tell us what you think we've done wrong and we will respond. And SCO says, we want to go fishing.

Imagine if you could just accuse a software company of wrongdoing and without providing any specifics or having any proof, you could make them turn over all their proprietary code so you could comb through it and try to find infringement. I'd say if courts allowed that, we'd have even more business-model-by-litigation than we already have to endure. Discovery is most particularly not supposed to be abused that way. You aren't supposed to use it as a way to go on fishing expeditions. Anyway, all SCO has to do is go through the Linux code itself and look for IBM copyrights. Or look on the internet. It's all public.

"CONCLUSION

"Based on the fact that SCO voluntarily supplemented its answers and that IBM's Motion to Compel is premature and wholly inaccurate, SCO respectfully requestes that this Court deny IBM's Motion to Compel."

Wholly inaccurate? By what yardstick? There are four footnotes too, but they are self-explanatory. Offensive, but self-explanatory. One footnote requires a reply:

"[2] These restrictions are fundamental to any license for software. In the absence of such restrictions and the ability to enforce them, a licensee can simply modify or rewrite code and then give it away thereby eliminating any value of the original source code. Thus, there can be little doubt that the gravaman of SCO's Complaint arises out of these critical restrictions on the use of the software and modifications and derivative works thereof."

Um. Did they forget about copyright? That most holy of holy laws? Nobody can take copyrighted code and modify, rewrite it, or give it away. You don't need a license to protect code from that.

SCO's Memorandum of Law in Opposition to IBM's Motion to Compel Discovery

Plaintiff's Memorandum of Law in Opposition to IBM's Motion to Compel Discovery

October 23, 2003

The SCO Group ("SCO") submits this memorandum of law in opposition to International Business Machines Corporation's ("IBM") Motion to Compel Discovery.

INTRODUCTION

It has been said that things have both an ostensible and a real reason. Ostensibly, IBM filed its motion to Compel to force SCO to answer interrogatories and produce documents because it had failed to do so. The reality, however, is that SCO not only timely responded to IBM's discovery requests, it then engaged in weeks of lengthy conversation, correspondence, and emails to resolve and clarify discovery issues and ultimately agreed to supplement its responses. But supplemental responses were not all that IBM was seeking. If that were the case, IBM would have waited until today, when supplemental responses were promised and were in fact served. No, what IBM really desired was a forum within which it could construct its stilted and inaccurate mischaracterization of SCO's claims, behind which it could hide its own failure and refusal to provide meaningful discovery responses. As detailed below, IBM's motion is without merit and should be denied.

At its core, IBM's Motion to Compel Discovery asks for answers to interrogatories that fit its own mischaracterized theories of the case, rather than answers that relate to the actual allegations made by SCO in the Complaint. IBM's baseless arguments begin as an effort to smear SCO and end with a newly created justification of why IBM has failed to provide any meaningful discovery responses itself. While IBM's improper litigation tactics are discussed in detail below, the Motion to Compel can be denied on the simple basis that SCO has actually provided supplemental answers, pursuant to earlier agreement, and this motion is therefore moot.

THE LAWSUIT

Contrary to IBM's efforts to recast SCO's Amended Complaint as one limited to trade secret violations, the Amended Complaint contains six counts--the first three counts are for IBM's numerous breaches of licensing agreements. The remaining counts, including Count VI for misappropriation of trade secrets, flow from this transgression and are ancillary to the breach of the license agreements. Thus, notwithstanding IBM's mischaracterization, trade secret misappropriation is not the gravaman of the Complaint (IBM Mem., p. 2), but it is merely one count that recasts one aspect of the injuries caused by IBM's breach. These injuries would exist even in the absence of any trade secret misappropriation.

In its Amended Complaint, SCO alleged that IBM and Sequent (now part of IBM and herinafter collectively referred to as IBM) were licensees of UNIX System V source code ("UNIX"). As part of this license grant, IBM was given certain rights and also agreed to certain restrictions upon its use of UNIX. IBM agreed, for example, that UNIX code and methods would be solely for its own internal business purposes (§ 2.01), [1] that UNIX code and methods would not be used for others and by others (§ 2.05), and that IBM would maintain the code and methods related thereto in confidence (§ 7.06). Similarly, IBM further agreed it would not sell or otherwise dispose of UNIX in whole or in part (§ 7.10). Significantly, IBM also agreed that any modifications or derivative works of UNIX prepared by IBM, would be treated by IBM "as part of the original Software Product." (§ 2.01). Thus, all of the foregoing restrictions on UNIX also apply equally to any modifications or derivative works created by IBM. [2]

Pursuant to these restrictions, IBM agreed that AIX, IBM's "own version of UNIX" (IBM Mem., p.2 n.1), and Dynix, Sequent's version of UNIX, would be used solely for internal business purposes, would be maintained in confidence, and would not be disposed of in whole or in part. IBM, contrary to these clear and unambiguous limitations on its use of UNIX, including modifications and derivatives thereof, has publicly touted its contributions of AIX and Dynix into Linux, the free, "open source" operating system that IBM has heavily supported, both financially and technologically. [3] Specifically, IBM improperly contributed these protected UNIX materials into the Linux 2.4 and 2.5 kernels (in lay terms, the of the operating system)--a decidedly public disposition of these protected materials. This action is a clear breach of IBM's obligations under the agreements with SCO governing the use of UNIX, and derivatives such as AIX and Dynix.

IBM'S MOTION

IBM's Motion begins with a seven page "preliminary" statement that makes unfounded attacks on SCO and its counsel. This gratuitous commentary was inserted by IBM in the apparent hope that innuendo and sniping may add weight to its motion. IBM begins by claiming "SCO has obfuscated its claims to foster fear, uncertainty and doubt about its rights and the rights of others." (IBM Mem., p. 3). In fact, SCO has done nothing other than assert its contractual and legal rights. [4] IBM then incorrectly attributes as a purported quote from SCO's counsel that SCO "doesn't want IBM to know what they [SCO's substantive claims] are." Even a casual review of the article IBM relies upon (IBM Mem., Exh. C) reveals that no such statement was made by SCO's counsel. Indeed, the one paragraph "article" is nothing more than a gripe by a reporter who failed to obtain information from counsel about the case. More importantly, SCO's counsel, through communication with IBM's counsel and through its Amended Complaint, has made perfectly clear to IBM what its substantive claims are. That IBM chooses to ignore the statements and the actual claims detailed in the Amended Complaint does not give rise to a motion to compel. [5]

The "Preliminary Statement" repeats over and over that SCO purportedly has failed to answer the series of questions arising from the "trade secrets and any confidential or proprietary information that Plaintiff alleges or contends IBM misappropriated or misused." SCO, however, previously provided appropriate answers. Nonetheless, SCO has filed supplemental answers to interrogatories, served today consistent with its agreement to do so, which specify the source code files that contain the information IBM and Sequent agreed to maintain as confidential and proprietary. Much of this information was developed by IBM and Sequent and, pursuant to their license agreements with SCO, both IBM and Sequent agreed it would be held as confidential. As a result, some of the information IBM requested will be known only to IBM, so the specifics of who at IBM was involved with improperly contributing this code to the public, how they did so, and the like will not be known until SCO gets the information from IBM, the party who contributed the protected materials in violation of its contractual obligations.

Such a situation does not create grounds to grant a motion to compel. As the court explained in a case cited by IBM, O'Connor v. Boeing N. Am., Inc. 185 F.R.D. 272,281 (C.D. Cal. 1999), a toxic tort case, "the clear inference from the reponse is that [respondents] do not yet know exactly how they were exposed to contaminants, but exposure occurred. When additional information is known to [respondents], they must supplement their response under Rule 26(e)." Likewise, SCO is presently attempting to ascertain, through the interrogatories and requests for production it has propounded to IBM, the associated background information and details that it needs to prepare its case as well as to fulfill IBM's request. Thus, to the extent certain portions of the answers are not currently available, they can be supplemented upon receiving the information from IBM, the party that improperly made the contributions to Linux in violation of its obligations to SCO and the party that presumably can identify who at IBM made the unlawful contributions to Linux, to whom they were made, when they were made, and other related details. To date, however, IBM has failed to provide this information, despite its agreement and obligation to do so.

As noted earlier, because SCO long ago indicated it would supplement its answers to interrogatories, IBM's motion should be denied as premature. Having provided the supplemental answers, IBM's motion is also rendered moot. Under these circumstances, normally there would be no further reason to address any of the remaining statements in IBM's memorandum. Here, however, IBM has advanced two arguments that so egregiously distort the facts and circumstances of this case that SCO is forced to respond.

1. IBM's Characterization of the Presentation at the SCO Trade Show is False and Misleading.

Throughout its memorandum, IBM makes repeated reference to SCO's trade show and a particular presentation about SCO's contractual rights made at that trade show. IBM incorrectly asserts that during that presentation, SCO identified "four categories of alleged 'misappropriation' by IBM: (1) literal coping; (2) derivative works; (3) obfuscation; and (4) non-literal transfers." (IBM Mem., p. 6)(parentheticals omitted). The slides from the SCO Forum trade show relied upon by IBM (IBM Mem., Exhibit F), corroborate that SCO has not publicly made any such allegation against IBM. Slide 8, which is the only one to contain the terms "literal copying," "derivative works," "obfuscation," and "non-literal transfers" does not mention IBM, or indeed anyone else. In fact, Slide 8 does not mention trade secrets at all, but rather illustrates SCO's bases for a potential copyright infringement action. What makes IBM's use of this trade show material particularly misleading to this Court is that the code in question identified by SCO at the trade show and elsewhere was code from a licensee other than IBM. In fact, it was widely reported after the trade show that the example of improperly contributed code was from SGI, which has since publicly acknowledged its improper contribution. It is inconceivable that IBM is unaware that the code identified by SCO in its presentation was from SGI, not IBM. In any event, as code contributed by another licensee, it should be obvious to IBM that, despite its demands for this code, the identity of such code is not responsive to any of IBM's interrogatories.

2. IBM's Claim It Will Not Respond to Discovery Until It Receives Supplemental Answers is Belated and Improper.

Most problematic is IBM's claim that it cannot repond to discovery until SCO supplements its answers to interrogatories. SCO's discovery requests directed to IBM have been outstanding for four months. Raised for the first time in this motion, IBM's manufactured excuse for failing to respond is absurd and contrary to its previous representations that it will provide the discovery requested.

Now, after mischaracterizing the breadth of SCO's complaint as detailed above, IBM suddenly claims "[w]hether a given document ultimately will be responsive to SCO's extensive requests turns on which trade secrets SCO identifies as being at issue in this case." (IBM Mem., p 18). No, it does not. The example used by IBM to support its recently created excuse for not providing any additional documents since October 2, 2003, makes clear that whatever may be a trade secret does not limit IBM's obligations to provide full and fair discovery responses. Specifically, IBM points to SCO's Document Request number 11 and claims it needs guidance on the trade secret issue before it can repond. Request 11 is as follows: "All contributions made without confidentiality restrictions by IBM or anyone under its control including, but not limited to, source code, binary code, derivative works, methods and modifications to Open Source Development Lab, Linus Torvalds, Red Hat or any other entity." There is nothing on the issue of trade secrets that this Court needs to "clarify" for IBM to produce this information. As noted earlier, IBM contractually agreed to maintain certain information as confidential and proprietary. That includes all of UNIX System V, UnixWare, IBM's verison of UNIX, called AIX, and Sequent's version of UNIX, called Dynix. IBM cannot unilaterally alter SCO's claims by pretending the clear and unambiguous allegations in the Complaint and contractual obligations detailed therein do not exist. IBM must provide the requested documents and cannot avoid or alter its production obligation through the filing of a Motion to Compel that improperly seeks to alter the claims as pleaded by SCO.

CONCLUSION

Based on the fact that SCO voluntarily supplemented its answers and that IBM's Motion to Compel is premature and wholly inaccurate, SCO respectfully requestes that this Court deny IBM's Motion to Compel.

[1] All references are to the Software Agreement executed by IBM and attached to the Amended Complaint as Exhibit A.

[2] These restrictions are fundamental to any license for software. In the absence of such restrictions and the ability to enforce them, a licensee can simply modify or rewrite code and then give it away thereby eliminating any value of the original source code. Thus, there can be little doubt that the gravaman of SCO's Complaint arises out of these critical restrictions on the use of the software and modifications and derivative works thereof.

[4] It is particularly rich irony to witness IBM complain about the sowing of "fear, uncertainty, and doubt," given that the term originated from IBM's tactics. "Defined by Gene Amdahl after he left IBM to found his own company: 'FUD is the fear, uncertainty, and doubt that IBM sales people instill in the minds of potential customers who might be considering Amdahl products.' The idea, of course, was to persuade buyers to go with safe IBM gear rather than with competitors' equipment. This implicit coercion was traditionally accomplished by promising that Good Things would happen to people who stuck with IBM, but Dark Shadows loomed over the future of competitors' equipment or software." From The Jargon File available at http://catb.org/~esr/jargon/html/F/FUD.html

[5] Indeed, in conference calls with counsel that lasted hours, IBM's counsel was told repeatedly about the basis of the claims. In fact, when directed to the pertinent allegations of the Complaint detailing IBM's improper contributions to Linux, the response was that IBM's counsel lacked the technical proficiency to determine if the answers were sufficient. The answers are sufficient. The Amended Complaint and the prior answers detail the critical contributions by IBM to Linux, including NUMA (Non-Uniform Memory Access) and RCU (Read Copy Update). These technologies improperly contributed to Linux by IBM allowed Linux to make the quantum leap into high-end corporate enterprise use; a place it did not and could not occupy before IBM's unlawful contributions.4:08:21 AM

Friday, October 24, 2003

HP Wishes to Explain Sponsoring the SCO Tour

Here is HP's explanation for sponsoring the SCO city-to-city tour, which I reproduce in full:

"External Statement Concerning HP's Sponsorship of the SCO City to City Tour

"In light of statements by SCO concerning potential intellectual property problems in the current Linux software development model, HP has been asked whether our sponsorship of the SCO City-to-City tour represents an endorsement of SCO's position.

"HP's adaptive enterprise computing strategy is based upon providing customers with choice and flexibility to enable them to adapt to business change. HP's commitment to customers includes ensuring HP has the best platforms, solutions and partnerships for different operating system environments, with strategic focus on Windows®, HP-UX and Linux. This commitment also extends to the large installed base of HP customers who have deployed solutions based on SCO UnixWare®. Participation with SCO allows HP to help these customers adapt and grow with products and solutions based on this operating system.

"HP has a broad range of industry partners and sponsors many events all over the world. Participation in partner events does not imply endorsement or agreement with the business strategies of all of these partners; in fact, HP specifically does not comment on partner strategies, but provides the level of participation and commitment consistent with supporting HP's customers.

"HP's own commitment to Linux and the Open Source community has been demonstrated continuously over the past decade. At the same time, HP is the market leader in servers running Microsoft® Windows® and has a large number of customers deploying applications using the HP-UX operating system. HP has taken a leadership position in driving Linux for the enterprise, and recently assumed the risk of offering qualifying customers indemnity against potential SCO lawsuits relating to alleged copyright infringements within Linux. This is another move driven by HP's commitment to put the needs of its customers first.

"As the leader in industry-standard computing, HP supports its customers' choices in terms of the operating system they choose to use."

9:32:37 AM

A Few More Crumbs Along the RBC Trail

A lot of folks have been asking why the Royal Bank of Canada would invest in SCO. Some are unhappy about it:

"'This is an irresponsible decision that the Royal Bank is making, both financially and morally,' said Mike Gifford, co-founder of Ottawa-based Linux firm Open Concept Consulting. 'I can't understand why any bank would decide it was a good decision to go off and invest in a failing company that's pursuing a very weak legal argument against a community of developers.'

"RBC spokesman Chris Pepper refused to explain the investment, or how it would respond to any potential complaints from customers who make their living selling open source products. 'We have a policy of not commenting on anything we do for clients,' he said.

"SCO Group spokesman Blake Stowell said BayStar Capital is a private equity crossover fund that makes direct investments in late stage privately held companies, but he had few details surrounding RBC's involvement. 'I'm not sure who approached whom,' he said."

One explanation may be that this isn't the first time RBC has been involved in business with a Canopy Group company. If you note this August 13, 2003 press release from Altiris, you'll see that RBC was one of the underwriters for Altiris' recent stock offering:

"FOR IMMEDIATE RELEASE - 8/13/2003

"Altiris, Inc. (Nasdaq: ATRS) today announced that it has priced the sale of 3,000,000 newly issued shares of its common stock by the Company and 2,000,000 shares of its common stock by a selling stockholder at $18.75 per share. The Company will not receive any of the proceeds from the sale of shares by the selling stockholder. The Company has also granted the underwriters a 30-day option to purchase up to an additional 750,000 shares of common stock to cover over-allotments, if any.

"Credit Suisse First Boston is acting as lead manager in the offering, and the co-managers are Deutsche Bank, RBC Capital Markets, First Albany Corporation and D.A. Davidson & Co."

Wait. Deutsche Bank is listed too, along with RBC. Hmm. That's the same Deutsche Bank that recently put out a buy recommend on SCO that briefly sent the SCO stock price up to the clouds above. If you check the Altiris SEC Amended Registration Statement for Form S3, sure enough, both companies are listed.

And then one more crumb. According to this article in CSO Online, Microsoft's new chief security officer comes to them from RBC:

"'You can have great security without privacy I suppose,' says Peter Cullen, former chief privacy officer of Royal Bank of Canada and newly appointed chief privacy strategist for Microsoft, 'but you can't have great privacy without great security.'"

Well, well, well. Small world, isn't it?

Then, just so you can't say Groklaw isn't thorough, here's one more piece. One of the directors of RBC is Douglas T. Ellis, Senior VP at IBM.

9:31:31 AM

In India, Red Hat Shows SCO the Door and Darl Talks Turkey, in French

Our own eagle-eyed belzecue submitted this article from The Financial Express, which reports that the largest insurance company in India is dumping SCO and going with Red Hat Linux:

"It is Linux time for the financial sector. Life Insurance Corporation of India (LIC), the largest insurance company of the country, is implementing Linux, the open source code operating system, replacing SCO Unix across its 2,048 branches. . . . Said Mr H Nanda, deputy secretary, software development centre, IT department, LIC, 'We chose Linux over some popular proprietary OS like Windows as we wanted to run all our existing in-house applications without spending much and at the same time did not want to be tied to license based OS. We will have the necessary freedom in future to develop various applications according to customers[base '] requirements.'

"LIC officials believe that by choosing Linux the company will save a huge amount of money in terms of licence fees, minimum use of third party applications and customisation cost of existing applications."

So it's bye bye, SCO. Hello, Red Hat:

"Red Hat will provide centralised support and training along with helping LIC[base ']s software developers develop Linux based business applications."

The reason this has got to be hurting SCO is LIC India just happens to be listed on their web site as one of their prized "success stories". They had 6,000 servers running UnixWare, according to the success story. Let's see. The story indicates they were wanting to dump UNIX and considered Windows and Linux and finally decided on Linux. Presumably, then, had SCO not stopped selling their Linux products, they could have held on to this customer, by just swapping in Linux. Woops.

Well, perhaps they consider that a small loss, compared to their pie-in-the-sky dreams of unimaginable wealth from litigation, the new SCO business model. Marc sends us a report from France, with a Darl McBride interview in French, in which he tells us how much money he figures he will get from IBM if SCO wins. His calculation is $1 billion per week. The interview is here, in French. My rusty French, with support from an English translation by computer, and some help from Groklaw readers, informs us that he apparently said that SCO is fighting for the good of the computer industry. It's like the early US history, he says. First they just took the land and then things got organized later. I gather he plans to organize the software industry.

More like strip mine it.

He says IBM will owe them maybe 50 billion dollars a year, so delay, while a negative in one way, is not hurting them financially if they win the IBM case. Then there are all those servers using Linux they can license. Ka-ching. Ka-ching.

Judge Kimball might like to know what a week's delay is worth to SCO, since they are currently requesting several delays in the discovery process. Hopefully, the judge won't let them keep the meter running for all the delays SCO itself caused when calculating damages if, in some alternate universe, SCO is able to win anything. Here's the French on that answer, so you can translate for yourself:

He again says Linux companies can't realistically remove the code, because there's millions of lines, not thousands, but if they did remove it, that's fine with SCO, as is dropping down to any version of Linux below 2.4. Wait. Didn't they just tell the judge it's about methods and ideas, not ... I'm confused.

Maybe he's fund-raising among the French. Financially, SCO is doing fine, he says, and again he says the company has no long-term debt. And they plan on sales of licenses. Open source means freedom, not getting code free, he says. Ha ha.

I must have misunderstood the French and/or the computerlingo, because I can't match any definition of the word freedom with what he is planning for Linux. If accuracy matters to you, get a real translation, please. I'm just pointing you to the source.

Speaking of methods and ideas, there is a really interesting article by an attorney, Douglas L. Rogers, of Vorys, Sater, Seymour and Pease, on trade secrets and SCO's claims, and he touches on the methods and ideas angle. Maybe SCO should drop the trade secret claims. After reading the article, I don't think things are looking so good for them on that score.

In contrast to Darl's rah rah talk, there is this TechNewsWorld story, in which Neil Macehiter, research director at Ovum, says analysts were largely right in predicting that not many would buy a license from SCO:

"'Reality is dawning on SCO. They've yet to release details of exactly what is the subject of the case; no litigation has gone ahead as yet and, in the meantime, Hewlett Packard has said it will indemnify HP Linux users against any litigation with SCO,' he said. 'Apart from a handful of enterprises, businesses aren't playing ball with SCO, which is not seeing the success it anticipated with the legal case against IBM.'"

UPDATE: James Sauve has stepped up to the plate and offered us a line-by-line translation of the McBride interview. For copyright reasons, I will quote significant snips only:

"Linux contains portions of UNIX, of which SCO is the sole proprietor. We are aware that many are unhappy. But, this is the battle of the century : things are going to change when it comes to intellectual property of digital information, and we are mounting this campaign for everyone's benefit. It's somewhat like the birth of the United States of America : at first people just took the land, then things got organized."

"Q:How do you feel about the fact that the IBM case won't go to trial until 2005?

"The delay is hurting us. On the one hand, given that we have revoked IBM's Unix license, they owe us, according to our calculations, 40 to 50 billion dollars per year, if we win our case. On the other hand, 5 million Linux servers with the Linux 2.4 kernel or higher have been deployed. This represents billions of dollars...

"IBM chose to over posture themselves by putting forward the GPL, a matter we hadn't yet raised. We think that the use of our code is governed by copyright law, not the GPL. That will be the second round of the battle.

"Replacing the illegal code seems unimaginable, even if we would be the first to approve such a solution. But we're talking about millions of lines of code and not a few dozen. On top of that, the pieces that were taken are precisely what makes Linux a viable solution for enterprise deployment, like SMP and NUMA. We therefore invite enterprise users to properly license Linux by purchasing our run-time-only Linux license or downgrading to a version of Linux prior to 2.4, which will probably be enough for some companies."

The most interesting part of the new translation is that it makes clearer what they mean by copyright trumping the GPL. I understand now that they mean their code, which was distributed by them under the GPL, they now claim, wasn't really distributed that way, because they didn't mean to so distribute the code and copyright law protects them from having to GPL it forever. Now, since Linus and the FSF told them from the beginning that if they had inadvertently released any code it would be removed, why are they litigating the point instead of just accepting that generous offer?

9:30:37 AM

SCO: It's IBM's Fault We're So Slow with Discovery

Here you are. Plaintiff's Substitute Motion for Enlargement of Time to Respond to
Defendant IBM's Motion to Compel Discovery. In it, SCO explains to Judge Kimball why it should get more time to answer IBM's Motion to Compel. It's here as a pdf and below is a text version.

Everything they say is to buttress their claim that they need more time. They say it isn't just about lines of code; it's about methods, ways of doing things, and from their standpoint it's about IBM violating a license agreement. They need time to properly frame their response. It's not that they are stalling. It's just that IBM has phrased things so contentiously, they need to answer in detail. Oh, if only it were as simple as just turning over some documents!

The trade secrets issue is not the main thrust of their case, despite IBM trying to mischaracterize it that way, they add. And they admit they goofed when they brought up the local Utah rule, implying IBM didn't give them proper notice of what they were after. They were working from an incomplete fax, they claim, but happily they have since found IBM's addendum and "SCO apologizes to this Court for filing a motion deficient in that manner." They acknowledge they did have notice.

They tell the judge the case is so complex that just turning over the code IBM is demanding wouldn't tell the complete story and that is why they need more time. Translation: we don't want to turn over the code this exact minute. And when we do, don't expect it to be convincing.

It looks to me like they are quite worried about IBM being too effective in telling the judge why SCO shouldn't get more time to respond to IBM's Motion to Compel, and it also sounds like they are trying to spin the ball just right, because they know they have to hand over the code, and we all know how effective that will be. Not. So here they are preparing the judge, and the world, by saying that it isn't central to their case anyhow.

It all comes across as a kid telling the teacher why he didn't do his homework. How convincing do you find this, for example?:

"The drafters of the first Motion for Enlargement worked largely from faxed documents that were incomplete and did not contain the Addendum to IBM's Motion to Compel. Since the filing of the original motion, the contents of the Addendum were discovered."

Your dog ate your homework. They frame it all in a way that the judge won't be totally able to ignore, though because they are saying, unless they have more time, the judge won't understand the issues properly.

This is just my impression of the document. Here it is in full so you can form your own:

Plaintiff's Substitute Motion for Enlargement of Time to Respond to Defendant IBM's Motion to Compel Discovery

October 20, 2003

Plaintiff/Counterclaim Defendant, The SCO Group, Inc. ("SCO"), through its undersigned counsel, pursuant to Rule 6(b) of the Federal Rules of Civil Procedure and applicable Local Rules, respectfully submits this Substitute Motion for Enlargement of Time to Respond to IBM's Motion to Compel Discovery. [1]

The issue underlying IBM's Motion to Compel is not really a dispute about one party's intransigence in turning over documents in its possession. Such motions are relatively straightforward. Rather, as SCO will amplify in its response, IBM has framed the facts underlying the motion in such a tendentious way that it leaves SCO little choice but to address numerous contentions outside the proper scope of a discovery matter.

Specifically, IBM's Motion to Compel attempts to reframe the entire subject matter of SCO's dispute with IBM as the misuse of trade secrets. [2] Yet, SCO's amended complaint has six counts. The first three constitute the core of the complaint, and are for breach of the licensing agreements to which SCO is a successor in interest. The remaining counts -- including Count VI for misappropriation of trade secrets under Utah Code Ann. § 13-24-1 et seq. -- flow from this transgression and are ancillary to the breach of the agreements. Thus, contrary to IBM's mischaracterization, trade secret misappropriation in this case involves merely one count that recasts one aspect of the injuries caused by IBM's breach. These injuries would exist even in the absence of any trade secret misappropriation.

IBM's frustrations, expressed in its Motion to Compel, seem to flow from its unwillingness to admit that SCO's claims about trade secret misappropriation extend beyond merely lines of source code and computer files to methods, that is, to ways of doing things. Thus, contrary to IBM's assertion that "the only dispute here is whether SCO can meet its obligation to provide meaningful responses to the interrogatories through a general reference to the documents it has or will produce," IBM Memorandum 10, the dispute appears to be of a completely different magnitude. To properly apprise this Court of these facts and the applicable case law, SCO respectfully requests an extension of time to October 24, 2003 to respond to IBM's Motion to Compel Discovery.

No prejudice will come to IBM by the granting of this Motion; nevertheless, IBM has opposed it.

Respectfully submitted,

DATED this 20th day of October, 2003.

[1] The drafters of the first Motion for Enlargement worked largely from faxed documents that were incomplete and did not contain the Addendum to IBM's Motion to Compel. Since the filing of the original motion, the contents of the Addendum were discovered. The Addendum does provide the requisite notice as to IBM's objections to SCO's responses. SCO apologizes to this Court for filing a motion deficient in that manner. This substitute motion again addresses the need for a brief enlargement of time without reference to the procedural requirement imposed by DUCivR 37-1(b).

[2] For example, IBM has claimed that "[t]he gravamen of SCO's complaint is that IBM misappropriated or misused alleged trade secrets," IBM Memorandum 2; IBM likewise implies that trade secrets are the fundamental issue at stake when it claims that "[i]nterpreting SCO's discovery requests absent identification of the trade secrets at issue has, however, proven very difficult." IBM Memorandum 18.

9:29:28 AM

Ballmer Says Commercial Software is Better Because Someone's Rear End is on the Line

You know I couldn't resist covering this story. Microsoft's Steve Ballmer picked up his glove and slapped Linux across the face in a speech given at an industry conference thrown by...who else, Gartner?

In his speech, he said some peculiar things about security:

"Ballmer ... disputed the notion that open-source code is more secure than Windows. 'The data doesn't jibe with that. In the first 150 days after the release of Windows 2000, there were 17 critical vulnerabilities. For Windows Server 2003 there were four. For Red Hat (Linux) 6, they were five to ten times higher,' he said.

"'The vulnerabilities are there. The fact that someone in China in the middle of the night patched it--there is nothing that says integrity will come out of that process. We have a process that will lead to sustainable level of quality. Not saying we are the cat's meow here--I'm saying it is absolutely not good reasoning to think you will get better quality out of Linux.'"

Ballmer's being a naughty boy again. China indeed. "In the middle of the night." Trying to frighten the children with overtones. And playing with numbers. What year is it again? Red Hat 6? Pardon me for pointing it out, but they are up to 9 now. He's choosing a 150-day period from back in the day -- and I wonder how long it took to pick the best segment of time to use -- and using that for comparison? There is a lot that can be said about this, but it's not really necessary to do any research on this sad subject, I don't think. Everyone on a Windows box just went through the worst summer and fall of security issues of all time. They already know he's just ...well, what would be the precise word here? You hate to say lying. It's so cold.

Funny he would choose such an old time period, don't you think, for his comparison? Maybe it's because looking at July through October of this year would be devastating? I see only two Linux vulnerabilities on the list for that time period, both buffer overflow vulnerabilities, so evidently there has been considerable improvement on the Linux side.

Look at what could happen to you on a Windows box in the first two weeks of September 2003, though, just using a handful of the many recent vulnerabilities here and here and here and here and here and here and here. I didn't include July and August or October or the rest of September, out of kindness. Now, what Mr. Ballmer needs to do is show me anything like that kind of news coverage of security vulnerabilities in GNU/Linux, for any two week period. And speaking of critical, look at what the results could be from the Windows security issues:

"'An attacker who successfully exploited these vulnerabilities could be able to run code with local system privileges on an affected system, or could cause the RPCSS Service to fail. The attacker could then be able to take any action on the system, including installing programs, viewing, changing or deleting data, or creating new accounts with full privileges,' Microsoft warns."

Defying these facts, here's what Ballmer said about the built-in superiority of commercially produced software:

"The Microsoft chief executive also contrasted the quality of software that's produced by commercial makers to that of software that's developed under the open-source model. 'Should there be a reason to believe that code that comes from a variety of people around the world would be higher-quality than from people who do it professionally? Why is its pedigree better than code done in a controlled fashion? I don't get that,' he said.

"'There is no road map for Linux, nobody who has his rear end on the line. We think it's an advantage a commercial company can bring--we provide a road map, indemnify customers. They know where to send e-mail. None of that is true in the other world. So far, I think our model works pretty well,' Ballmer said."

Oooo. Scary. "The other world." More ominous overtones.

He doesn't get it, or claims he doesn't, so I will explain. The very openness he and SCO criticize is what makes Linux more secure. Why? First, there are no artificial roadblocks. All their moats and chains and gates and laws and terror tactics to make sure no one looks at their code or "steals" it create blockades that can get in the way of fixing problems. In GNU/Linux, anybody can fix anything and offer it to the world as a cure. Then someone else can test it and verify it, and pass on that info. You don't have to use what they write, but you can if you want to. Someone is awake somewhere 24 hours a day, and so things tend to get fixed fast. As George Bernard Shaw pointed out, talent can crop up anywhere, and anyway, not even MS can hire all the talented people in the world.

And here's another secret: Linux users help out with bug reports. Yes. We do that. For nothing. Just to help. Millions of us. This is the secret sauce of GNU/Linux, a significant part of its power. If we users try software and something doesn't work perfectly, we let the authors know. That is Linux' secret. Hidden problems don't stay hidden, when anyone can bump into them and let the authors know they need to fix it. If the user knows how to fix it, he or she can fix it and send the fix back to the author. And the author doesn't charge you to contact them either. It's a very efficient system. Ever try to call Microsoft?

As someone wrote me the other day, Windows comes from a box. Linux comes from a community.

So the result is, although Mr. Ballmer can't believe it, Linux really is more secure. And the data does jibe. It appears IT professionals are catching on now. They just released the results of a survey of IT pros, and their opinions of Linux security versus Microsoft does not match Mr. Ballmer's views. There has been a rise in confidence in Linux in the past 6 months:

"New research shows that confidence in Linux as a secure platform is up. A recent survey conducted by the research firm Evans Data shows that Linux's reputation as stable and secure operating system is growing among people who write code for a living. . . .

"The survey also found that open source code, modules and tools are used more widely among developers than they were a few years ago. In a 2001 survey, Evans Data found that 38% of the 500 developers it surveyed said they used open source code in the applications they write. The most recent findings showed that 63% of developers incorporate open source today.

"Overall confidence in Linux as a mission-critical serving platform was also up from past year's surveys. While 34% of the 500 developers surveyed in 1999 said they thought Linux was ready for prime time, 64% said in the latest survey that they would trust mission critical applications to run on Linux."

So when Ballmer says the "data doesn't jibe", the question is, which data? Or, more precisely, whose?

Look at the spike in security incidents this year, compared with last year, 114,855 in the first three quarters of this year and only 82,094 incidents for all of last year. It's a good time to be thinking about security.

Have you been thinking about trying Linux? HP will let you test drive various Linux environments to see how you like them. It's really a tool for developers, but the web site doesn't list any restrictions as to who can do a test drive. They offer Red Hat, Debian, Mandrake, SuSE, and others. If any of you journalists or CEOs out there have never tried Linux, why not give it a whirl? (I hope the rest of you leave them room by not crowding ahead of them. Obviously, there's limits to how many can do this at once.) Or get yourself a Knoppix CD and try Linux on your own computer here. It runs off the CD, so when you are finished, your Windows software is still there, if you insist. Knoppix is a Debian version of GNU/Linux, by the way, and some consider Debian a very secure environment indeed. It's fun. If you try it just one time, it will open your eyes.

9:25:59 AM

Sunday, October 19, 2003

SCO Asks the Red Hat Judge Not to Give Them Their Day in Court Part Two

Then, bully fashion, SCO tells the judge that if the court does not dismiss for lack of jurisdiction and does not dismiss by exercising its discretion (the two arguments SCO has so far advanced), it should either stay the Red Hat action until the IBM case is finished or "transfer it to Utah where the previously-filed IBM action is currently being prosecuted." Now I am laughing out loud. Looking for a little home town advantage, eh? Like the judge is going to do that. Both SCO and Red Hat are Delware corporations. Red Hat's home town advantage venue, though, would be North Carolina, where it is located physically. So Delaware is kind of neutral territory, and the judge isn't likely to send the case to another state where one of the parties will have an advantage. I just can't see that happening, barring other factors I don't know or have somehow missed. I think SCO knows she isn't likely to grant that request, so it adds a threat:

"Indeed, if this Court does not dismiss this action, SCO intends to file a motion to stay and/or transfer to Utah."

Judges love to be threatened. They teach a course in how to do that in law school. That's how effective that technique is. Not. It seems that what SCO wants is a time delay, by hook or by crook. If they can't get it from the judge one way, they'll get it another way. I don't think judges like to be told what to do Or Else. They are hoping, perhaps, the judge will find them so aggravating to deal with, she'll just send them to Utah to get some peace. I know I'd like to send them someplace to get some peace. But she has other options. Judges have a lot of options, particularly in fashioning declaratory judgment relief.

Section II begins the section in which SCO tries to tell the judge that they did not violate the Lanham Act. It sets forth the five elements that Red Hat must meet to establish a Lanham Act claim, a) a false or misleading statement about its product or another's product; b) deception or a tendency to deceive a considerable portion of the relevant consumers; c) significant deception likely to influence purchasing decisions; d) that the goods advertised are in interstate commerce; and e) a likelihood the plaintiff will be injured. So far, so good.

Then, SCO trots out the argument that Red Hat has no product, because it has no proprietary interest or ownership in Linux 2.4 and 2.5 kernels and that "indeed no one has such an interest". Well, now, why do they say that? Because they claim no one purchases the kernel because, they say, it's "free". I don't believe they are saying this out of confusion over is it free as in speech or free as in beer. They are saying it because unless you have goods in interstate commerce, you can't bring a Lanham Act claim. You can read about that here.

Standing for a claim of false advertising, which is what Red Hat has accused SCO of, "requires plaintiff to be a competitor," they say, and because the kernel is freely distributed, Red Hat can't allege any ownership interest. My, how they struggle with the GPL.

I can't see any judge buying such an argument, because it isn't factually true. Even if the judge did buy it, on appeal she would be reversed. True facts are what judges are looking for, most particularly. This section simply beats all for knock-down, drag-out gall. The funny part is, I bet they congratulated themselves when they thought it up.

I think when this is all over, I might write a book about this case, and the theme, beyond just telling the SCO saga and Groklaw's story, will be how the GPL tripped up some of the best lawyers on the planet and made them fall down and go boom.

This must mean they have absolutely no one on their side who is a GNU/Linux person, or he or she would have explained the GPL to them before this document was submitted. Do you realize how many wins we have had already, just from SCO's absolute incapacity or unwillingness to understand the GPL? The only hope they have, and it's a long shot, is that the judge suffers from a similar incapacity.

But is it really an authentic inability to comprehend it? Let's look at the evidence. First, they are lawyers. They read licenses for a living. Caldera released its products under the GPL for years. No, let me correct that. They *sold* their products for years, released under the GPL. So do they know that GPL code can be sold? And that a company can have a copyright interest in GPL code? Obviously, they do. They contributed code to the kernel themselves. Canopy's Ralph Yarro just did an interview in which he stated that many of the companies in the Canopy Group are Linux companies. This isn't Greek to them. So do they believe the nonsense they just told the judge?

SCO is protected by the First Amendment

Finally, in section III, we reach the end of their three arguments, that they are protected by the First Amendment and can therefore say all the bad things about Linux they want to. Besides, they say, Delaware lets you say bad things if you are involved in a lawsuit and it's speech in that context. Their line of reasoning goes like this: commercial speech has a lesser protection under the First Amendment,
but their speech wasn't altogether commercial. It has some "protected, non-commercial elements". They quote from a case that they themselves say "is not controlling in this instant matter", to which this reader's reaction is, why, then waste my time with it? The reason they quote it is because the judge in the case wrote about there being speech in publications in that case that "clearly contained elements of both" commercial and noncommercial speech. SCO analogizes itself. It didn't make product comparisons denigrating Red Hat's product , they argue, (and since they are claiming Red Hat has no product, it's no wonder they feel free to make that argument), but rather all SCO's statements "involve expressions of its legal rights, granted by copyright and contract law". But fellows, maybe you forgot, the IBM case isn't about copyright infringement. It's a contract case, so anything you said about copyright infringement wouldn't be protected by your participation in that lawsuit. You didn't send IBM one of those 1,500 letters, did you?

Next SCO mentions another case, Riley, which they also acknowledge isn't apposite to the instant case. And indeed reading the quotation about the public need to hear "information and advocacy" about charitable contributions, the subject matter of that case, it's hard not to wonder what are they thinking.

Well, reading on, they explain, with flowery detail, that this case involves public issues of importance. It's not just a commercial dispute between the makers of two products. It's about the noble quest to establish that IP has value and must be protected, and because of that, they should be allowed to say bad things about Linux 'til the cows come home, because the public has an interest in the issue and needs to hear it discussed. Oh. It's a public service they are performing when they attack us.

Then they make the single most incredible argument I have ever seen in any case I have ever read in my entire life. It deserves some bold type: They actually argue that the GPL is designed to destroy the economic value of copyrights.

This is beyond wrong. It's Alice in Wonderland, off-with-their-heads talk. They can't be lying here, can they, no matter what the evidence may be for that in other sections, because they'd know then that their argument is laughable? If my attorney offered such an argument on my behalf, I believe I'd report him to the Ethics Committee or sue for malpractice. But no, they aren't kidding. They somberly wrap themselves in a cloak of self-righteousness, like the Man of La Mancha, and seriously argue the point. Their Point of Points.

I had to take a break and just laugh for a while and then come back to this, because it's so incredibly enjoyably, deliciously silly. As one Grokker noted in a comment here the other day, this must be the Attack of the Pointy Headed Bosses (PHBs). In Utah, copyright trumps the GPL, SCO says. In Delaware, the GPL destroys copyrights. No. Not enough. It's designed by evil masterminds to destroy copyright. I'm thinking they may want to rethink their plan to get this case moved to Utah. Somebody might notice they speak with forked tongue.

OK, here's what they say on the holy topic of copyrights: essentially, they accept as true that no one will pay for software that can be freely downloaded. Ipso facto, the GPL is against money for software. Really, that's what they say, only they say it in highfalutin' legalese, with a fervor worthy of Joan of Arc:

"The reason this line of argument is relevant and important in the instant case is that the speech Red Hat complains of is entirely and unequivocally intertwined in SCO's attempts to publish and defend its intellectual property rights, including copyright and contract rights, protected by law in the face of withering pressure by Linux software advocates to make operating system software free and thereby destroy the economic value of software copyrights so highly protected under the U.S. Supreme Court cases cited above. The speech must be protected because it involves critical and timely public issues about legal rights of the type held by SCO. As such, SCO's speech in this case involves an issue of significant importance to our digital society; it is not just an issue between Red Hat and SCO."

I'm not making this up. They really said that. They then sneak into the document, as if it supported how important this subject is to us, the public, the fact that there is a mountain of press about this case, (and it's handy to collect because they have paid their PR company to create it), as if it were a demonstration of the importance of the sacred topic they advance, as opposed to being a combination of paid-for PR results and the public's fascination in watching this company commit suicide-by-judge before our very eyes. It's like a car wreck. You just have to look.

I think I may safely state that none of the hundreds of thousands of readers who visit Groklaw every week do so because they are interested in the question as framed by SCO here, because despite the insignia SCO has sown onto its banner and held high as they unjustly charge the Linux community, we know that one of the freedoms of the GPL is the right to sell GPL software, yes, sell it... for ...gasp...money. Here is the relevant information from the GPL FAQ page:

" Does the GPL allow me to sell copies of the program for money? Yes, the GPL allows everyone to do this. The right to sell copies is part of
the definition of free software."

SCO may find it incomprehensible that anyone would pay money for something they can get for free, but I do, for one, because I find it more convenient to buy CDs than to download. So, there you go. I am a witness that they are ... I debate which phrase of Linus Torvalds to insert here. I'll leave it to you. Feel free to be creative and build on his work, in true open source fashion. (Just check for copyrights first, you pirates. And prior art. And none of that "don't ask, don't tell" use of other peoples' methods and ideas, either. What? No ideas left? Then stop being creative. There are more important things in the world than progress. Like money, for instance.)

How are copyrights going to be protected in a digital age, SCO calls out to the judge full-throated, if SCO can't speak out? Listen, guys, you can calm down. Nobody wants your worn-out UNIX code. We've told you from day one: if you can show us any infringing code, we'll take it out that very day. We don't want it. Problem solved. There is, therefore, no need for your quest, you phonies. And the GPL, in fact, relies upon copyright. You could say it is built on it. That's how much it isn't attacking copyrights.

Your Impossible Dream has nothing to do with protecting your copyrights, we don't believe. What we think you want is to steal *our* copyrighted code and get the masses so worked up with hypocritical arguments in the media that they will let you do it, so you can make out like bandits from code you didn't write and have no "proprietary interest" in. We also believe you may have already stolen our code and are terrified we'll find out you have taken our copyrighted, GPL work and put it in your proprietary, hidden software code. If you've done that, you would need to destroy the GPL before anyone finds out and makes you either take out the code or GPL your own software.

So, recovering my composure, that is their argument. They should be allowed to badmouth Linux because it's a newsworthy topic of "public importance that cannot be overstated." I think I'll lose my composure again for one little minute, long enough to say this: people died for the First Amendment. The founding fathers of America believed in the values expressed in the Constitution deeply enough to give their lives to make it a reality. To see SCO debase the First Amendment by using it try to shield their weasel behinds from the legal consequences of their low-down, mean-spirited, unprovoked, dishonest attacks on the GNU/Linux community is a kind of, well, a kind of secular blasphemy. Yes. No less.

They are telling the judge and the whole world a lie: that the GPL is attacking their copyrights. They want the judge to allow them to tell this lie, because lots of news clippings show people are interested in hearing what they have to say. How noble. How inspiring. How rotten to the core. They know, because we have told them, in public and in private, that we don't want their copyrighted code.

What they are not telling the judge is an ugly truth: they can't compete with GNU/Linux software and they want to use the law to prop up their dying business. What a quest. The right to use lies in the media and the law to destroy your competition instead of competing in the marketplace fair and square. I guess the scripture is true: some people really do worship money. SCO is all worked up about losing money because a better product than theirs has come along that people prefer. How dare the community come up with a better mousetrap? And a product they can't steal or coopt? That is their real beef, but they don't dare to say it that plainly.

There is also a letter attached, from Mark Heise, one of the SCO attorneys in the IBM case, offering to testify as a witness in the Red Hat case about two things: the letter SCO sent Red Hat after Red Hat apparently asked SCO to sign a stipulation that it would not sue them or Red Hat's customers, and SCO refused. He's willing to testify about that settlement letter. That indicates to me that SCO is plenty worried about how those discussions went leading to that letter and they feel they must tell their side of the story, because the letter doesn't look so good. Then he offers to testify about the GPL. The GPL? Now that I'd pay money to see. Mark Heise an expert witness on the GPL. He's such an expert, he attaches the GPL itself, which so far from attacking copyright law says this about how the GPL protects your rights:

"We protect your rights with two steps: (1) copyright the software, and (2) offer you this license which gives you legal permission to copy, distribute and/or modify the software."

Yes, that is what it says. The first step is to copyright the software. That's what the GPL is built on, you befuddled and/or hypocritical SCOfolk, on copyright law. Later, in the GPL exhibit, it adds:

". . . each file should have at least the 'copyright' line and a pointer to where the full notice is found."

Then it gives an example:

"one line to give the program's name and an idea of what it does. Copyright yyyy name of author"

I hope this judge reads exhibits. If she does, she surely will not miss that, even if SCO's "GPL Expert" Heise did.

Do they think they can fool the judge with this argument? Unless she is a lot stupider than I am, I'd say that is unlikely. And by the way, Judge Robinson is far from stupid.

I have to say that predicting court cases is risky business. And it's certainly true that judges do try to consolidate two cases for the sake of judicial economy. But if the judge grants SCO's Motion to Dismiss or sends this case to Utah or grants a stay, I'll be more than surprised.

But I don't expect that to happen. For one thing, SCO didn't ask for the judge to send them to Utah or for a stay until after Red Hat had already responded. Now it throws in the idea, but not by means of a motion, and as a result Red Hat has no opportunity to respond. The odds of SCO getting a yes on either request on this document seem extremely slim, therefore. Unfortunately, SCO has already told us that they won't take no for an answer and will file yet another motion as soon as this one is denied, if it is. I don't know how long it'll take for the judge to get sick of SCO's delaying tactics or to recognize them for what they are or even if she will. But she should. I hope it won't take long and that she'll give them short shrift, but there are no guarantees in a courtroom. I do have an opinion, however, on the merits of this document. I was decidedly underwhelmed. And I hope Judge Robinson feels the same. We should know in about a month.

9:36:04 AM

SCO Asks the Red Hat Judge Not to Give Them Their Day in Court Part One

I said I'd dissect SCO's Reply Brief in Support of Its Motion to Dismiss, so, picking up my knife with gusto, here goes.

First, it is a cynical document. The overview is that they are asking the judge to either dismiss Red Hat's case or, failing that, either grant them a stay until the IBM case is settled or consolidate the two cases by sending the Red Hat case to Utah. They warn her they will submit a motion requesting that relief, if she fails to grant SCO's Motion to Dismiss. Both a stay and a consolidation would mean Red Hat'd have to wait years for any relief. In short, SCO doesn't want to talk about their proof this exact minute, so they would rather not have their day in court.

Oh, and SCO says the GPL is trying to destroy copyright law. And furthermore, the GPL forbids proprietary ownership, so that means no one can own it. They do know better, but that is what they wrote to Judge Robinson. I guess they hope that she doesn't know any better.

You have two choices wading through their spinach: either laugh or throw up. I leave it up to you. There is a third choice, I suppose, nod off. But when your enemy is talking, I think it's prudent to pay close attention. So, let's hold our noses and dig in, going through the document sequentially.

You might want to review the information on declaratory judgments on this page, beginning at the heading "3.The Declaratory Judgment Act." It will help you follow along, although its focus is patents, and it's harder to get a declaratory judgment in a patent case, and this case isn't about patents, so bear that in mind. Remember this all began with Red Hat filing for a declaratory judgment, followed by SCO's Motion to Dismiss, which Red Hat opposed, and now SCO is replying.

SCO's Reply is divided into three basic arguments:

1. The Court lacks subject matter jurisdiction

2. SCO's conduct does not violate the Lanham Act

3. Red Hat's Lanham Act claims are barred by the First Amendment

The Court Lacks Subject Matter Jurisdiction

This is the section that is the longest. It's the part where they try to convince the judge that there is no actual controversy in the declaratory judgment sense, because they say they didn't threaten to sue Red Hat. If they can get the judge to agree with them on this one point, the declaratory judgment request by Red Hat is dismissed. That's why they spend the most time on this. Also I expect they spent a lot of time on it because it's their weakest area, because they surely sounded like they were going to sue Red Hat to you and to me. Now they must persuade the judge that they never said that and nothing that they said or did meant it either.

They start by complaining about Red Hat using selected quotations that they say are misleading. That's to get the judge to think badly about Red Hat. But the truth is, you have to cut the quotations you use somewhere, so that's just a judgment call. They, however, try to paint it as deliberately done to make points underhandedly. Yawn.

Next, they say that Red Hat lacks a protectable interest in the Linux kernels, the 2.4 and 2.5 kernels at issue, because the GPL "prohibits any proprietary interest and provides that they may be freely copied by anyone."

This silly and false statement is actually a very devilish use of the word "proprietary". When we talk about open source versus proprietary software, we mean that proprietary is the kind where you are not allowed to look at the code. Open source is the kind where you can. Usually, proprietary companies are corporations like SCO or Microsoft. So, when I hear the phrase,"proprietary software", I'm thinking along those lines.

But in the law, proprietary means something else, and they are trying to confuse the two in the judge's mind, or at least in the public's mind, so she'll think Red Hat has no proprietary interest because it's not a proprietary software company. She won't be confused, but I'm guessing they hope the rest of the world will be. Or maybe they are confused themselves.

Here's the legal definition of the word "proprietary" as used in the law, from Steven H. Gifis' "Law Dictionary", 2d Edition:

"Proprietary: owned by a particular person."

First, the GPL does not forbid owning the code. You can't GPL your code unless you do own it. Second, the Linux kernel is copyrighted code, with the GPL license on top, and the GPL does not negate the copyright interest. The kernel has many authors, who each have a copyright in their portion of the kernel, the part they wrote. In turn, there is a collective copyright in the total kernel. Do you have a proprietary interest in code when you own the copyright? Obviously, yes.

And while anyone can download it, that doesn't mean they can do whatever they please with it. There are license terms. License terms means somebody owns the code and lets you use it, subject to the owner's terms.

Second, Red Hat has a copyright interest ownership in the portions of the kernel it wrote, and they have their own distribution, which is "proprietary" in the legal sense, available by subscription and you can also buy it as a product in a box at places like Amazon, or any other distributor, and you can also sign up for various subscription plans and there are different support contracts for most of their products. Does that sound like a commercial enterprise to you? All of their products include the kernel. It's an integral part of what they are selling. Also we should note that the RedHat Enterprise Edition kernel is not a stock kernel.org kernel, but one that has been customized by Red Hat, and this customized kernel is what they offer in all of their product offerings. They also allow you to download some of the software for free, if you know how, but then you are on your own.

So, does the GPL forbid code being owned by a particular person? No. It does not. It requires it. Does Red Hat, as one of the authors of the copyrighted code they wrote and donated to the kernel, have ownership rights over that code? Yes. Does Red Hat, then, using the legal definition, have proprietary rights to the kernel? Yes. You see how devilish this argument is? They are trying to confuse everyone by using a word that has both a legal meaning and a marketplace meaning that essentially are contradictory. You'll see later why.

The way they wrote this part, SCO seems to be trying to argue that proprietary code, in the general business meaning of the word, meaning owned by a company that forbids you to look at the code, is the only kind that can be protected under the law, and the proprietary business model, as opposed to the open source model, the only one the legislators intended to protect. Very crafty. Very wrong, but very crafty.

Next, they argue that there was never a "direct threat" against Red Hat. Their initial argument could be summed up as saying, "We never said the exact words, 'We are going to sue you,' so there was no direct threat." They also state that SCO never directly contacted Red Hat, so that proves they didn't make any direct threats. Actually, what it proves is that they failed to mitigate their damages, if any. Then they sum up by saying, "So, you see, your honor, there was never a direct threat of litigation."

The law doesn't require a direct threat. Indirect will do. They know that, so SCO goes on to discuss whether the totality of the evidence supports there being a reasonable apprehension of suit from other types of statements and actions that could be viewed as an indirect threat sufficient to justify Red Hat coming to court for relief.

Here, they sound like a battering husband, explaining his wife's screams to the police when they show up at his door. "It's nothing. She's just excitable." Its first specious argument has to do with the statement by McBride that there would be "a day of reckoning" for Red Hat. They downplay that, saying he didn't mean litigation against Red Hat. No, no, nothing of the kind. He meant if SCO won the IBM suit, Red Hat would then have the opportunity to pull out the offending code and voluntarily pay up for any past offenses.

Right. No threat there.

Anyway, the law isn't interested in what he meant, as I understand it. It's interested in what Red Hat thought he meant and what a person of normal intelligence would have understood his words to mean. If someone told me I'd hurt them and now I'd face a day of reckoning, I'd take it as a threat. Wouldn't you? Some things are just obvious.

Red Hat argued that the 1,500 letters sent to its customers or potential customers alone constitutes a threat, but SCO says they have taken their words in that letter out of context by not quoting them in full. When they said they would vigorously defend their IP rights, they meant by means of the IBM lawsuit, not by suing Red Hat or end users.

Juxtapose that with McBride's statement in Friday's teleconference that SCO leaves open that very possibility, as reported in this news story:

"SCO is in the process of following up on letters sent to 1,500 enterprises this year, advising them that they may be in violation of SCO's intellectual property rights in their use of Linux. 'Our goals is not to go out and start suing companies,' McBride said. 'But, as we go down that path, if we have certain companies out there that are using Linux and we're unable to come to a resolution or reach an impasse, then we absolutely will reserve the option of (taking) the legal path as the remedy to go resolve that.'"

So, which party correctly interpreted the letter? And of course, that isn't an isolated remark. Just this week, a headline in TheStreet.com called them "Litigious SCO". And for more, just click on our new Quote Database, and you will see a long list.

Even if it were true that the phrase in the letter about a vigorous defense of its IP referred to the IBM lawsuit, the phrase doesn't preclude other actions in addition to the IBM lawsuit. And if that were all SCO meant, why send warning letters to the 1,500 companies at all? See, this is why people hate lawyers. Red Hat argued that threatening its customers was sufficient to qualify as a threat against them. Take a look at this spin SCO's lawyers put on that ball:

"Moreover, the statement in SCO's letter that 'legal liability that may arise from a Linux development process may also rest with the end user,' similarly does not rise to a threat by SCO against Red Hat customers. This observation does nothing more than raise a theoretical question subject to various interpretations and legal arguments. Clearly, this statement does not place a customer in reasonable apprehension of suit, since it does not include an 'unmistakable threat of litigation.'"

Is that what you got out of that letter? That nobody would be sued? They were just having a theoretical legal discussion? And that SCO never intended to frighten folks into buying a license? We here on Groklaw sent them a letter that if they tried to enforce their threats, we'd take legal action. Would we have done that if we didn't believe there was a threat against us, the end user? I have several Red Hat distributions that I paid for, so I'm a Red Hat customer.

The license they are offering precisely guarantees they won't sue you if you buy it; if there was no threat to sue, exactly what have they sold those poor saps who signed up? If the answer is nothing, I think fraud might come into the equation, and not just in a theoretical legal discussion, either.

Next, SCO says Red Hat hasn't identified a single customer that SCO has accused of infringement. Well, now, that depends on whether you accept their interpretation of why they sent those 1,500 letters and why they are selling those licenses. Here, SCO is hoping for a TKO.

SCO tries to undermine Red Hat's use of the case Aralac, Inc. v. Hat Corp of Am., 166 F.2d 286, 292-93 (3d Cir. 1948). I can't find a free version of for you. It's an old case, so it's hard to find on the internet, except through paid services like Lexis. I did find a dissenting opinion by one judge, (the dissent wasn't about the case) that mentions this case. I don't think SCO would like the use to which it was put by this judge in his dissenting opinion in Alagrant v. Evergreen Valley Nurseries, LTD.:

So this judge believed that the case stands for the proposition that judges shouldn't dismiss declaratory judgments , which is what SCO is asking its judge to do, if they meet the two simple tests he lists, that there is a controversy and that the case can be settled by a declaratory judgment. By that reasoning, SCO would likely lose.

SCO then launches into an argument that because Red Hat doesn't control the kernel, it has no "proprietary interest", and hence there can't be an actual controversy. It does control its own customized version of the kernel. Note how they describe it on their web site:

"All products in the Red Hat Enterprise Linux family are based on a common software core--kernel, libraries, development toolchain, and utilities. This provides a homogeneous environment ideal for simplifying multi-system and desktop-to-datacenter configurations. The immediate benefit: simplified deployment of distributed applications, and a consistent environment for users and system administrators across the entire family. . . .
Introduced in September 2003, Red Hat Enterprise Linux, version 3, includes a broad range of new features: .... Based on Linux 2.4.21 kernel: Red Hat Enterprise Linux uses the latest stable Linux kernel with numerous additions from the Linux 2.5/2.6 kernels."

In short, they roll their own, so SCO is all wet here. And, they also have copyrighted code their employees were paid to write and contribute to the kernel, so that also gives them a proprietary interest. They are trying to negate all of this obvious evidence of Red Hat being a company with goods in interstate commerce, a requisite for Lanham Act claim, by saying that they lack a proprietary interest because anyone can dowload the kernel freely over the internet.

What are the odds of a judge agreeing with that novel concept of commercial and copyright law, that you have no ownership interest if you ever allow anyone to have a copy for free? If that were so, then SCO had and has no ownership interest in OpenLinux, because it's still available for download under the GPL license and it has been for years and years. Poof. Copyright gone, ownership interest gone, if we accept SCO's nonsensical argument. If Red Hat has no ownership interest, then neither do they. Do they know all this? What do you think?

If their reasoning were correct, then Microsoft has no proprietary interest in Internet Explorer. You can download that for free over the internet too. Ah, but it has a EULA, so it isn't just a free-for-all. The Linux kernel has a license too, the GPL, and it's not a free-for-all either. There are terms that limit what you can do with it. What, pray tell, is the difference?

For a company that is stating that copyright trumps the GPL, they seem to breezily ignore the copyright interests of kernel contributors, and here they actually have the nerve to argue the exact opposite of what they are arguing in IBM's case. In the IBM case, they say the GPL is trumped by copyright. Here, they argue that the GPL trumps copyright. I don't think they can have it both ways.

Groklaw readers, as usual, have already taken a look at the copyright notices in the kernel and come up with proof of copyrights belonging to Red Hat. There really is something amazingly effective about legal research using the open source method. Here is one example, found by Dr. Stupid:

"There's a couple duplicates from my commands (places where the copyright message gets printk'ed or MODULE_AUTHOR'ed as well as being included in the file) but you get the gist of it. Of course, SCO's attempt to paint the kernel as 'a process with which plaintiff has had no connection' would be ludicrous even if Red Hat just redistributed Linux without developing it themselves.

"SCO is also expressing the er... interesting... theory that because the Linux kernel is freely redistributable, they can say whatever they want about it because Red Hat doesn't have a 'sufficient economic interest' to defend it. I suppose this is a reasonable mistake on Caldera's part, but they should check out Red Hat's quarterly reports and disabuse themselves of the notion that just because they couldn't make money distributing Linux, nobody else can either."

Next, they attack a Red Hat case that they offered to prove that an implied threat is enough to establish an actual controversy. SCO tries to distinguish the current facts by saying that in that case, letters were sent with the implied threat, and SCO never sent any letters (um, how about 1,500 of them?) so therefore the case doesn't apply, as if the only way to convey an implied threat is by letter. It also tries to hide behind the argument that they never set a deadline for Red Hat or its customers, so that means there was no threat. Puh-lease. As if I could say, "I'm going to kill you," and it carries no legal weight as a threat unless I tell you when, what you must do to avoid it, and when the cutoff date is to get it done.

Next, SCO repeats a case it used in its original Motion to Dismiss, so that means they may be having trouble coming up with any new ones. Not a good sign for SCO. They say that they have never made any express charges of infringement against Red Hat. I'm guessing that they crossed their fingers behind their backs when they wrote that. Anyway, this is all hot air, because the issue under the law isn't was there a threat; the issue is, is there a controversy? Deciding if there is a controversy is a case-by-case matter, and it depends on the totality of the facts, not on certain words or actions.

Red Hat pointed out that the license itself is a threat. Not so, says SCO, and they argue, and yes, now I am starting to laugh, that they found cases where offering a license on a patent doesn't constitute a threat, like their offering their license, which specifically protects buyers from a lawsuit by them, wasn't a threat to sue anybody. And remember that part about it being harder to get a declaratory judgment in a patent case?

Litigators are a breed apart. Not all lawyers have the stomach to be a litigator, and you can see why, reading this. Imagine having to say things like this for a living. Not that any lawyer actually has to. SCO just has a knack.

Next, they use a case, Bonterra America v. Bestmann, 907 F.Supp . 4 (DDC 1995) and say it stands for the proposition that "the fact that a customer curtailed relationship with plaintiff to avoid any possible risk of suit for infringement does not serve to create in plaintiff a reasonable fear that defendant would sue plaintiff for infringement", as if that is all that happened in the current case. Again, this is a rehash, using the same case they put in their Motion to Dismiss. They must be hoping this judge can't think clearly. Or has short term memory issues. It's not good to repeat yourself like this. They spent three paragraphs on this case in their Motion to Dismiss. She will remember that. I even remembered.

Incidentally, when you see ungrammatical sentences like that in a legal document, it often means the lawyer was working too fast and just copied the header info on the case. If you use Lexis, for example, at the top of the page, they'll list headers, in abbreviated sentences, telling you what the case is supposed to prove. It's an aid to researchers. But you're not really supposed to quote the header. You're supposed to actually read the case to see if it fits your facts.

Then, SCO tries to beat back the impact of another Red Hat case, Treemond Co. v. Schering Corp., 122 F.2d 702. By the way, why do they respond to all these cases? They have to or they're sunk. Red Hat found some very strong cases. But significantly, after quoting from Treemond, SCO fails to answer it meaningfully. It's a big hole in their argument. All they say is that their threatening language wasn't as threatening as the language used in Treemond. That's a judgment call, not a strong legal argument, so it's up to the judge to agree or not. They didn't offer any cases to counter it, which is what you normally would want to do. I'm sure they looked for some.

Here is how Red Hat used the Treemond case:

"In addition to the allegations that SCO addresses in its motion, Red Hat alleges a second set of facts that independently establish an actual controversy between Red Hat and SCO: SCO has sought to coerce Red Hat's customers into paying for a license with SCO to use Red Hat LINUX. Further, Red Hat has alleged that while explaining its licensing program at its recent conference call on July 21, 2003, SCO specifically stated that it anticipated such a disruption (Complaint 61.) The Complaint quotes the transcript from the SCO's conference call: 'And so I'm guessing that those end users are going to be looking around to the vendor or vendors involved in supplying [LINUX software] to them whether it's Red Hat or IBM and saying, "What's up, guys? You know what's happening here?" But, you know, that is going to be their beef with their particular vendor.' (Id.)

"The Third Circuit has found that such public statements aimed at the plaintiff's customers establish an actual controversy. Treemond Co . v. Schering Corp., 122 F.2d 702, 705 (3d Cir. 1941) (reversing dismissal of complaint for declaratory judgment of patent invalidity and noninfringement based on finding that defendant's notice in trade journal threatened purchasers with suits if they purchased plaintiff's product). SCO's motion must be denied on this basis as well."

SCO needed to effectively counter this case that supports Red Hat's claim that SCO's public statements and the licensing program are sufficient to establish an actual controversy. In my opinion, SCO failed.

Next, their argument is that even if the judge doesn't agree with them that Red Hat had no reasonable apprehension of litigation justifying their declaratory judgment action, the judge still should dismiss it. Here's why they say she should do that: because the IBM case, they say, will settle "most, if not all" of the issues raised by Red Hat anyway. Most? They seriously think she will say most is enough? The other problem with this argument is that it won't. But they argue that Red Hat, in effect, should wait its turn. First, let the courts decide if there is any infringing code. If the courts say there isn't, then Red Hat could bring the action.

That is an odd argument to advance in a declaratory judgment case. First, by that time, Red Hat's business could be so badly disrupted by SCO's shenanigans that there'd be no way to be made whole. The chief purpose of a declaratory judgment action is to force the other side to court, to get a decision, so a threatening party can't make threats and never actually bring a lawsuit and just destroy your business that way, without you being able to do anything about it. Here, SCO is arguing that the judge should let it do what the Declaratory Judgment Act was written to prevent. Note this from the earlier linked page explaining the Act:

"Outside of the patent field, declaratory judgment actions can be used to prevent tortious acts -- before they occur -- by allowing any interested party to obtain a declaration of the respective rights and legal relations of the disputing party where an actual controversy exists. The object of a declaratory judgment is to avoid the accrual of damages by seeking a court's determination of the rights of parties."

Duh. In effect, they are asking the judge to let Red Hat's damages build and build for a couple of years. And if the IBM case is won by IBM, Red Hat would hardly need to bring a declaratory judgment action then, would it?

Something else strikes my eye. They repeatedly state that the argument is over the 2.4 and 2.5 kernels. But in the teleconference they claimed that their IP is in the 2.6 kernel too, so the IBM case isn't going to settle all the issues, because it isn't even discussing the 2.6 kernel.

And it doesn't settle the specific question Red Hat is asking them to settle: Red Hat is asking the judge to declare that Red Hat is not infringing SCO's copyright. How could the IBM case settle that? Correct, it can't.

SCO's problem is it looks at all issues only from their own standpoint. It's to their benefit to make Red Hat wait, and so they argue it should happen. Then they reach and stretch and twist the law around to try to make it fit. That isn't so rare, but I've never seen such an ill fit as this. Red Hat is alleging that SCO is hurting their reputation and their business. Solving the copyright issue one way or another does not address the trade libel, misleading advertising, and other tort issues it has raised. If Red Hat wins on those issues, it will collect money damages. But if IBM wins, no money damages will go to Red Hat. It has to establish its own torts, so SCO's pretense that they should just let the IBM matter go first ignores the damage Red Hat is claiming. Of course, that is probably because they don't care a bit if they are hurting Red Hat's business, because their purpose is to slow or stop Linux adoption, judging by their behavior. In fact, they have a new program to encourage people to migrate away from Linux. They are saying to the judge: please let us continue to really hurt Linux adoption for another couple of years by making Red Hat wait. It's a breathtaking request, and I can't see why a judge would grant it, and I've tried hard to think of any conceivable reason why she would.

--continued in part two --9:33:19 AM

Groklaw's New Quote Database Feature

We are happy to announce a new feature of Groklaw, a searchable database of quotations by principals in the SCO story. There is a link to it right under the Home link, on the left.

For example, perhaps you're Red Hat, and you'd like to know everything Darl McBride ever said about your company, you can find it here. Perhaps I should qualify that last statement to say that you can find everything he ever said that we have in our database.

Or maybe you read a quotation in a news story by, say, Laura DiDio, and you wonder what else she has said about this subject over the course of the SCO saga. Now you can readily find out, and I must say, the effect is cumulative.

The database has been donated to us by Groklaw reader and computer programmer LHJ, and we're very grateful to him for his wonderfully useful code. It's an ongoing database, obviously, so if you find bugs or have submissions to add to the database, just email me or leave a comment with your submission and we'll follow through.

The database includes some new copyright information on the SCO/Novell copyright mystery that LHJ collected in his research.

One of the first uses of the database was by LHJ himself, to figure out who is quoted most frequently in the mainstream media on the SCO story, and I'll bet you can guess who won, hands down, but I'll let him tell you about it:

"I have felt for a long time that SCO was executing a very well-planned
media strategy, together with a serious, organized program to reach out
to big investors. As bumbling as their legal strategy seems to us, they
have been very effective at getting their message out and convincing
investors to buy in.

"Like many others, I'm sure, I decided to track online media coverage of
the SCO case by reading all the stories I could and collecting quotes.
I wasn't serious about it for a while, because I kept feeling the story
would climax and die any time now. No doubt tracking of media coverage
is done routinely by company PR departments and political candidates using
staffers and extensive filing and database systems, but when I did finally
get serious, I realized I would have to do the same job in my spare time
as a one-person operation. Fortunately, open source tools like MySQL,
PHP, and Apache made it easy for me to design a system to enter and store
article titles and urls as well as quotes, all with just a few clicks.
The next step for the project would be to become a collaboration with
many eyes sifting through all the data and proposing features.

"The result now is a database of 668 articles and 846 quotes that is
easy to search for all kinds of interesting tidbits. Have SCO
executives made comments mentioning Red Hat? Search for it in a
blink of an eye. Which journalists have been most prolific
in covering the story? Another quick search.

"One interesting search I made was a check of who has been most quoted
about the case. Then I checked how often these people were quoted
week by week over the whole year so far. There are a number of
factors that make the results less than definitive. For example, I
have certainly not made an exhaustive collection of the articles and
quotes out there. It's also possible that I did a more thorough job
collecting quotes by some players over others.
Moreover, the quote count below will put heavy weight on articles and
interviews where someone is quoted multiple times, and this measure
may not be appropriate for the comparison.

"Nevertheless, the list appears with the quoted parties ranked
1-9 then A-F. Below the ranking is a week-by-week list of all quotes
labeled by the digit or letter rank of the quotee. The result is a
crude bar graph that tells you who was talking to the media when.

"I caution you from over-interpreting. It's clear that SCO executives
actively sought exposure and coverage during some periods. On the
other hand Linus Torvalds (#5 at 21 quotes) only spoke out at a few
key moments and kept to his development work the rest of the time.
When Torvalds did choose to speak out, he didn't have trouble being heard.

I hope you enjoy Groklaw's new feature. I've certainly been having fun playing with it. Like everything else about Groklaw, though, it has a serious purpose as well, and we hope you will all help out by sending us quotes with urls and your ideas for new features, so we can make this over time a truly complete work.

9:27:46 AM

SCO Requests a Delay on Answering IBM Motion to Compel

SCO got the delay it wanted to answer IBM's Amended Complaint with Counterclaims, so they are asking Judge Kimball if they could have until the 24th to answer IBM's Motion to Compel. IBM has opposed their request. Also IBM is adding another lawyer to the team. Here's the docket info:

10/17/04 Entered: 10/17/03 Add attorney for IBM David R. Marriott
10/17/03 Motion to extend time by SCO to 10/24/03 for pla to resp to mot/compel
10/17/03 Memorandum in opposition by Intl Bus Mach Inc in opposition to motion to extend time to 10/24/03 for pla to resp to mot/compel

Marriott appears to be a patent infringement guy for Cravath, judging from his involvement in this case. That's assuming this is the same individual, which I don't know to be the case.

Peter Galli of eweek really did ask BayStar and SCO about whether MS is behind the cash transfusion SCO just got. Everyone denies it. I think it's wonderful that Galli actually asked. That's what reporters are supposed to do. But there is one shadow in the picture:

"McGrath also pointed eWeek to a BayStar White Paper on PIPEs published in October 2002, which lists both Microsoft and Vulcan Ventures, Inc., the investment firm of Microsoft co-founder Paul G. Allen, as being among the top ten PIPE investors since 1995.

"That, McGrath said, could explain why people were assuming that Microsoft was an investment partner alongside BayStar, but he was unable to say if Vulcan was such a partner."

9:26:10 AM

More From the Teleconference

This is PR to the nth degree: how to mortgage your company, give up on suing SGI, and admit you can't send out invoices after all and make it sound like a plus.

Here are reports from the teleconference to show you what I mean.

Peter Galli of EWeek reports this interesting bit. SCO says it didn't go looking for money. Several companies, according to McBride, approached them, looking to invest:

"The ability to build up a 'war chest' of cash was too compelling to pass up[~]and so The SCO Group agreed to a $50 million investment deal, announced yesterday, with investment fund BayStar Capital.

"In a media and analyst teleconference Friday, CEO Darl McBride said he is pleased with the structure of the transaction, which is favorable to both the company and its shareholders. 'They are non-voting convertible shares and, once converted, the investors will own 17.5 percent of the company's outstanding shares,' he said.

"SCO Chief Financial Officer Bob Bench said there is no timing on the conversion of the shares, which are immediately convertible and have to be redeemed in minimum batches of 100,000 common shares at a time. There is also mandatory redemption once the stock price reaches 150 percent of the transaction value or 20 consecutive trading days at that level.

"'SCO also has redemption rights and after three years can redeem the stock with a liquidation preference. So we have a lot of freedom to redeem this stock if BayStar has not converted,' Bench said.

"No dividend will be payable on this stock for the first 12 months, but will then kick in at 8 percent and then rise by up by 2 percent for each of the next two years with a 12 percent cap. ...

"McBride also pointed out that SCO did not solicit the investment deals, but was approached by several companies interested in taking an investment stake in the company."

So, several companies approached them. Whoever might they be?

Techweb has more details, saying SCO does intend to pursue "royalties" and will use the cash infusion to follow up, just not with invoices:

"Part of the proceeds would also be used in bolstering its legal battle against IBM and Linux distributor RedHat Inc., and in trying to convince enterprises to pay royalties for the use of Linux, which SCO claims contains its intellectual property. However, SCO President and Chief Executive Darl McBride listed that as the third target for the additional funds.

"While SCO's claims against Linux get all the media attention, only a 'small percentage' of the company is working on collecting royalties. 'But clearly, there are a lot of opportunities for the company as it relates to enforcing our intellectual property rights,' McBride said. 'The two major operating systems in the world -- Unix and Windows -- SCO owns one of those, and having the ownership around the Unix operating system is a gigantic marketplace opportunity for us' . . . .

"SCO is in the process of following up on letters sent to 1,500 enterprises this year, advising them that they may be in violation of SCO's intellectual property rights in their use of Linux. 'Our goals is not to go out and start suing companies,' McBride said. 'But, as we go down that path, if we have certain companies out there that are using Linux and we're unable to come to a resolution or reach an impasse, then we absolutely will reserve the option of (taking) the legal path as the remedy to go resolve that' . . . .

"In its suit against IBM, SCO would not refuse to discuss a negotiated settlement, but that the suit was still very much in a litigation mode. 'With respect with IBM, that one is in the claims, counterclaims response mode, and we expect that in the next week or so we'll have additional things coming out on that,' McBride said."

Still hoping for an IBM buyout, it seems. Deutsche Bank, according to this report, is still telling you to buy SCO, putting out a second report today confirming their Tuesday buy rating, and confirming my suspicion that they likely knew about this deal in advance:

"In a Friday conference call outlining the announcement, an excited SCO president and CEO Darl McBride touted the financing deal as "monumental," and deflected all questions about pending litigation as "irrelevant" to the funding news. According to McBride, the financing and the lawsuits are two separate issues entirely, and with a partner such as BayStar in its corner, SCO is now prepared to tackle whatever comes its way.

"'The momentum in the marketplace continues to shift in our direction,' he said of his company, formerly named Caldera Systems. 'We believe we have secured the capital necessary to fund all aspects of the long-term growth of this company' . . . .

"With this in mind, Deutsche Bank praised SCO on Friday with a strong 'buy' rating, the same rating the investment and securities firm had delivered in a report issued earlier this week. In a new report, Deutsche Bank analysts Brian Skiba and Matthew F. Kelly reiterated the $45 stock price they projected on Tuesday, adding that with $50 million from BayStar in the bank, SCO should have the resources to overcome any litigation.

"'We view this financing as a positive sign the company is increasingly equipped to take on larger challenges ahead,' the authors wrote in the new report. 'The funding puts to rest any concerns about sufficient cash to pursue legal challenges and ongoing investment.'"

And E-Commerce News says there may be acquisitions or new "strategic partnerships" as a result of this deal:

"BayStar Capital, whose other investments include Sirius Satellite Radio, Commerce One and Evolve Software, will provide SCO with the $50 million in cash in exchange for an approximately 17 percent stake in the software company. ...

"SCO also left open the possibility that it could make acquisitions or other moves, saying the cash could pave the way for 'new strategic partnerships.' The investment brings SCO's total cash on hand to about $61 million."

Over in England, a spokesperson for IBM says Linux is "totally unstoppable" and that IBM "shed our proprietary mindset" in 1995.

9:24:57 AM

SCO Replies to Red Hat and Amendment S3 Comparison to Original

I have the SCO reply to Red Hat, which you can read here. We'll be writing more about it shortly, but meanwhile I thought you'd like to see it for yourselves.

Here's something else of interest, a comparison line by line Dr. Stupid did for us (at work on his toy operating system) of the original S3 in September and the recent Amendment to the S3, which SCO just filed. Note the difference in the indemnification section, among other changes. Of course, toy OSs don't always get everything right, but it's still a very useful comparison.

9:23:52 AM

If You Want to Know What's Really Going On, Ask the Lawyers

No matter what spin SCO puts on it, here's what their lawyers think, as shown in SCO 's new 8K, just filed:

"Arrangement with Counsel

"SCO announced that it is in the process of finalizing a modification of the engagement with the law firm representing SCO in the protection of SCO's intellectual property rights. As part of this modification, which is subject to a definitive agreement, the law firm would receive a contingent fee of 20 percent of the proceeds from certain events related to is protection of SCO's intellectual property rights, including certain licensing fees, settlements, judgments, equity financings or a sale of SCO during the pendancy of litigation or through settlement, subject to certain agreed upon credits for amounts received as discounted hourly fees or prior contingency payments. In addition, this modification may result in the payment to such law firm of up to $1,000,000 and the issuance of up to 400,000 shares of SCO's common stock."

Lawyers always make sure they get paid. So, not a ringing endorsement of SCO's future as a company. And notice that they aren't getting paid only if they win the lawsuit, so that shows me they are no longer so sure of a successful outcome or that SCO will still be there at the finish line. The 8K also makes the claim that SCO IP is in the upcoming 2.6 Linux kernel. It says BayStar is one of two investers, but it doesn't say who the second one is [UPDATE: the full 8K with the Purchase Agreement is now up on SEC and it's the Royal Bank of Canada, which invested more than BayStar):

"About the Private Investment

"The SCO Group, Inc. ('SCO') has received a $50,000,000 private investment from two investors, including BayStar Capital II, LP ('BayStar'). The investment is structured as a private placement of non-voting Series A Convertible Preferred Stock. The Series A Convertible Preferred Stock is convertible into SCO common shares at a conversion price of $16.93 per share, which was the average closing bid price for SCO's common stock for the five consecutive trading days prior to the date of closing....

"SCO IP Licensing and Migration Initiative [~] In connection with SCO's intellectual property enforcement effort, SCOsource, SCO has alleged that the Linux 2.4 and the upcoming 2.6 kernel contain SCO intellectual property. In an effort to offer marketplace solutions to these Linux-related intellectual property issues, SCO released a licensing program to offer Linux users a right-to-use binary mode only license, subject to certain limitations. In the coming months, SCO intends to expand the licensing program to include migration options for those end users who may be looking for alternatives to Linux. Over the past several months, SCO has had discussions with several major companies for the purpose of bolstering SCO's intellectual property licensing and migration initiative.

"Legacy Business [~] During SCO's upcoming fiscal year, SCO intends to roll-out major upgrades for its two UNIX operating systems."

So, that's the public plan, to forget the licensing and try to get the world to stop using Linux. According to this report, they were so cash-strapped that had BayStar not stepped in, they would have been unable to go the distance to the trial with IBM. Even with the infusion, it seems they can't afford to sue SGI:

"SCO Group has suspended its demands for licensing payments from Linux users after receiving a $50 million infusion of cash from BayStar Capital.

"There are also indications that the company will concentrate solely on its original $3 billion legal action against IBM, which it claims infringed its Unix operating system licence by contributing technology that SCO claims was derived [~] however tenuously [~] from SCO's original System V Unix.

"This follows a concomitant decision to put its action against graphics workstation vendor SGI on hold. It accuses SGI of similar intellectual property infringements."

Tenuously is a good word. So, everything appears to indicate SCO's days may be numbered.

There is one paragraph in the Purchase Agreement between SCO, RBC, and BayStar that I've never seen in a contract before. That doesn't mean it's never been in any contracts before, just that it's new in my experience. It stands out because I think it'd be fair to call it the "Shut Up Clause". SCO must not issue any press releases or public statements about this deal without BayStar's prior review. It seems they know about McBride's penchant for issuing press releases and statements to the media, and they want at least prior review:

"The Company shall issue a press release (the 'Press Release') describing in reasonable detail the transactions contemplated hereby and such other matters as had previously been discussed by the Purchasers and the Company, as soon as practicable on or after the date hereof, but in no event later than the commencement of the first trading day following the date hereof. The Press Release shall be subject to prior review and comment from BayStar Capital II, LP ('BayStar'). Within two days after the Closing Date, the Company shall file a Form 8-K with the SEC concerning this Agreement and the transactions contemplated hereby, which Form 8-K shall attach this Agreement and its Exhibits as exhibits to such Form 8-K (the '8-K Filing'). From and after the Press Release, the Company hereby acknowledges that no Purchaser shall be in possession of any material nonpublic information received from the Company, any of its Subsidiaries or any of its respective officers, directors, employees or agents, that is not disclosed in the Press Release. The Company shall not, and shall cause each of its Subsidiaries and its and each of their respective officers, directors, employees and agents not to, provide any Purchaser with any material nonpublic information regarding the Company or any of its Subsidiaries from and after the Press Release without the express written consent of such Purchaser; provided, however, that a Purchaser that exercises its rights under Section 4(n) hereof shall be deemed to have given such express written consent. No Purchaser shall have any liability to the Company, its Subsidiaries or any of its or their respective officers, directors, employees, shareholders or agents for any such disclosure. Subject to the foregoing, neither the Company nor any Purchaser shall issue any press releases or any other public statements with respect to the transactions contemplated hereby; provided, however, that the Company shall be entitled, without the prior approval of any Purchaser, to make any press release or other public disclosure with respect to such transactions as is required by applicable law and regulations (provided that any such press release or other public disclosure shall be subject to prior review and comment by BayStar)."

The funny thing is, RBC makes no similar demand. So, it indicates to me that there is some aspect to this deal BayStar would rather SCO didn't talk about in public. Our assignment, should we care to accept it, is to find out what that aspect is.

Meanwhile, Stowell says that while they aren't going to mail out invoices, at least not now, the license is still available. They'll be "approaching" companies, just not using the US mail:

"He added the caveat that this was not necessarily a permanent decision. Furthermore, the licence will still be available. 'We're still approaching companies [to buy the licence], we're just not invoicing them.'"

Of course, the beauty part of that is, no one will ever be able to prove different.

UPDATE: I have heard from a tax attorney whose opinion I value, and he says, in the nicest way possible, that I'm all wet on this Shut Up Clause. He says they are fairly standard. So here's the scoop from him:

"With respect to the 'Shut up clause', it is fairly standard in the deals that I've worked on. Whoever is the lead manager for the investors gets veto or vetting power over any communications with the press with respect to the deal, just to prevent any
surprises. The lead gets the power just so that there is only one
representative of the investor group as the point of contact, otherwise
decisions would never get done."

"A company spokesperson said yesterday SCO's plan to invoice organizations, on the basis that Linux illegally contains SCO code, had changed following what he claimed was success of its UnixWare licensing program. . . .

Members of the open source community warned SCO last month in an open letter they would initiate civil action under anti-fraud and consumer protection statutes.

"Reports, meanwhile, said SCO called off its invoicing program in case it lost its $3bn legal action with IBM, in which case it could be found guilty of mail fraud. Mail fraud in the US is a relatively serious offense."

The article also includes the information that the deadline for SGI is extended, as discussions continue. But who can focus on that yet? Not me, for sure. Congratulations, everyone. It was a plum pleasing pleasure working with you.

9:21:32 AM

SCO Teleconference to Explain Itself Friday

SCO has announced the details of the Friday teleconference. They say they will explain the $50 million from BayStar and tell us what they will do with it and say "SCO will provide further details on the investment led by BayStar Capital Management." Hmm. "Led by" means others? I'm sure every word will be true blue and well worth the time invested. Only "press and industry analysts" are invited. The announcement calls them "the owner and licensor of the core UNIX operating system source code". It will be Friday at high noon, EDT, and there will be an audio replay for those "interested media and analysts" if they will provide SCO with their email.

BayStar Tells How to Invest Discreetly and Confidentially

Here's an interesting document. It's a white paper prepared by BayStar on PIPE transactions. Hint: go to Google and type in "baystar capital microsoft" and click on the third pdf link down on the page. Look at page three of the document. And there it is. Or just click here.

Here is how BayStar describes a PIPE transaction:

"A PIPE is a private investment in public equity. A form of private placement, PIPE transactions enable companies to raise capital in smaller amounts and with less dilution, lower expenses and greater flexability than a traditional secondary offering. PIPE transactions provide greater control and discretion in raising capital by allowing companies to issue securities without revealing their deliberations to the market until the transaction is completed. PIPE securities, which can be equity or debt or a combination of both, are typically sold at a discount to the current market price to a small group of accredited investors and/or institutional buyers seeking to acquire positions in desirable companies. . . . PIPE transactions -- particularly for those companies looking to access the capital markets quickly and discreetly without the increased visibility of a secondary offering -- can be an equally attractive or even superior vehicle for raising capital. The ability to conduct transactions confidentially, the reduced fees and management time, and the enhanced flexability of the process, are all important considerations that highlight the increasing value of PIPEs as an effective capital raising technique."

And who is listed in the top 10 list of investors in PIPEs since 1995? Why, Microsoft, silly. Who'd a thunk it? Disclaimer: this doesn't prove they made BayStar do this or gave BayStar the money to do it, or are the man behind the curtain or anything else necessarily. But it does mean we hope you journalists will read all about BayStar's investment philosophy in this document and ask SCO exactly where the $50 million is coming from, whether from BayStar alone or whether they are merely the conduit and if the latter, for whom?

UPDATE: I want to stress even more clearly than I thought I already had that this document does not demonstrate any MS-BayStar connection. MS invests in PIPEs and BayStar does them, but it doesn't necessarily follow that MS invested in BayStar. It's important to be fair. Yes, to MS too. And until we actually find a provable connection, and we have not so far, I don't want to contribute to any talk that such a connection has been proven. I'm very clear that no such connection has been proven, but I'm spelling it out very plainly, because I've gotten a lot of email from people sending me this document and saying it proves a connection. It does not, in my opinion, do that. It does raise the question, but it doesn't provide the answer on its own.

9:20:11 AM

SCO Gets $50 Million to Do More Bad Things With

BayStar Capital has invested in SCO to the tune of $50 million. They call it a private investment transaction. I call it a "raise the value of your stock by nonsensical research reports and other tricks and then profit from the increased value of your stock", but I'm no stock guru, so I could be imagining things.

Maybe it's the other way around, namely that DB knew this was in the works, and so they put out a report to try to look like they are geniuses. All I know for sure is it's a mighty funny coincidence. On the other hand, coincidences do sometimes happen.

This could explain a lot, don't you think, about recent events with the stock price, which apparently BayStar Capital was too stupid to see through? I presume this means there is now money to get from SCO when they lose in court, so Canopy guys can stop worrying about their own pile. Or at least that may be the hope. BayStar put their money on the wrong pony. But if they choose to throw money away, it's fine with me.

So, let me get this straight: the 75th fastest growing company in the US according to Deloitte's Fast 500 list needed to raise some money to keep going. Hmm. Makes you wonder about the economy -- or about Deloitte's Fast 500 evaluation, eh?

Here is the press release (note original press release has been taken down, brackets around the numbers removed and the new press release put up at the new location. The old one was here and it read: "The investment in SCO was structured as a private placement of non-voting Series A Convertible Preferred Shares, convertible into common equity at a fixed conversion price of [$16.93] per share, which was the average closing bid price for the Company's common stock for the five previous trading days prior to the date of closing. Upon conversion, BayStar will own an aggregate of approximately [2,953,000] shares of SCO common stock representing [17.5%] of the company's outstanding shares." ), and after we read it, it's time to research BayStar, natch, starting here and here :

LINDON, Utah, Oct. 16 /PRNewswire-FirstCall/ -- The SCO® Group (SCO) (Nasdaq: SCOX - News), the owner of the UNIX operating system, today announced it has received a $50 million private investment led by BayStar Capital, an investment fund that is a leader in providing negotiated private equity placements in publicly traded companies. The investment in SCO was structured as a private placement of non-voting Series A Convertible Preferred Shares, convertible into common equity at a fixed conversion price of [$16.93] per share, which was the average closing bid price for the Company's common stock for the five previous trading days prior to the date of closing. Upon conversion, BayStar will own an aggregate of approximately [2,953,000] shares of SCO common stock representing [17.5%] of the company's outstanding shares.

The net proceeds from the private placement, combined with the Company's cash balance reported for its third quarter ended July 31, 2003, will provide the Company with a cash position of approximately [$61.0] million. The increase in cash will significantly enhance the overall financial strength of SCO while providing substantial additional funding for business objectives including future UNIX and SCOx Web Services software development, new strategic partnerships, and protection of the Company's UNIX intellectual property and related programs.

"The momentum in the marketplace continues to shift in SCO's direction," said Darl McBride, president and CEO, The SCO Group. "Over recent months, we have made significant strides forward in our on-going effort to protect and enforce the Company's intellectual property rights through SCOsource. During the same period, we have been steadily strengthening our core operating business, and in the coming weeks, we look forward to providing the industry and Wall Street with additional details on our plans and initiatives. Now, with a $50 million investment from BayStar, we believe we have secured the capital necessary to fund all aspects of the long term growth of this Company."

"BayStar Capital looks to invest in growth-oriented firms with strong management, substantial market opportunity and solid, comprehensive business plans, and we believe that all of those fundamentals are in place for SCO to succeed," said Lawrence Goldfarb, General Partner, BayStar Capital. "SCO owns the most predominant UNIX software assets in the I.T. industry, has a 20 year history of providing trusted software solutions to end users around the globe, and an aggressive and seasoned management team focused on generating profitable growth."

SCO will hold a teleconference to address this investment on Friday, October 17 at 12:00 p.m. Eastern time. Participants should dial in 10 minutes prior to the start of the call and dial toll-free 1-800-811-8824 and use the confirmation code 690025. International callers should use the toll number +1-913-981-4903.

The securities sold in this private placement have not been registered under the Securities Act of 1933 and may not be offered or sold in the United State in the absence of an effective registration statement or exemption from registration requirements. The Company has agreed to file a resale registration statement on Form S-3 within 30 days after the closing of the transaction for the purposes of registering the shares of common stock underlying the shares of Series A preferred stock acquired by BayStar.

Here's what BayStar says about itself:

"BayStar Capital is a private equity crossover fund that makes direct investments in late stage privately held companies and small to medium capitalization publicly traded companies across all sectors. The firm is a leader in arranging Private Investment in Public Equity (PIPE) transactions that provide capital to companies seeking to reduce time to market, less stock dilution and lower market risk."

New feature: I've put up an IBM Timeline as a permanent page. It has everything that has happened so far and a list of future dates to watch for. There is a new link on the left side of the page "IBM Timeline". You asked for it. You got it. I'll do one on Red Hat as I can. Until the motion to dismiss is ruled on, and that should be in about a month or so, there is no timeline, except for the motions themselves.

Forbes' Dan Lyons has felt compelled to respond to the reaction he caused by his article on "Linux' Hit Men", which you can read here and I'd say it's as close to an apology as we're going to get. I'd say the letters were effective. Congratulations, everyone. Looks like his boss got our message. He asks a question which I'd like to answer. He says enforcement actions regarding the GPL will cause corporations to stay away from GPL code, and he asks if this is good for Linux. The answer is yes. We would like companies like SCO and other would-be thieves to stay away from GPL code and give up their dreams of coopting our code and "monetizing" it for themselves. We believe this would be very good for Linux. What Mr. Lyons does not comprehend, or SCO either, for that matter, is Linux doesn't need corporations. Corporations need Linux. That's the part Mr. Skiba of DB forgot to put in his equation.

I have a question for Mr. Lyons in return: Does he own any SCO stock? What are the guidelines for journalists at Forbes on such matters? Shouldn't journalists and analysts have to disclose any interest they might personally have in a story and if they have a strong interest recuse themselves, the way judges do?

9:18:07 AM

No Invoices, Deutsche Bank Comes Through Again, and SCO is "Honored"

It seems SCO is so pleased with response to its SCOsource licensing, it doesn't need to send out any invoices. Oh, and you have until the 31st before the price goes up on those invoices they aren't sending and you weren't going to pay anyway:

"The SCO Group has backed off a plan to send invoices to corporate users in order to prod them into buying licenses for their use of Linux, an operating system the company argues violates its Unix intellectual property.

"In addition, the Lindon, Utah-based company has extended until Oct. 31 a deadline after which it planned to double prices for the Linux license. Previously, the company had said the prices would increase Wednesday.

"'The executives have said we haven't had to do it yet,' SCO spokesman Blake Stowell said of the invoice plan. 'They're happy with progress in the licensing program.'"

SCO's satisfaction with the reaction to their licensing scheme will puzzle readers of their most recently filed Amendment No. 2 to Form S-3, which lists nobody new as having signed up. In other news, their stock was airborne again, thanks to some buddies at Deutsche Bank, and just in the nick of time, too, since those Vultus shares were getting ready to be sold and normally, as it has been explained to me by SCO in the S-3, that sort of an event might tend to dilute value:

". . . SCO's stock surged $4.97, or 32 percent, to close at $20.50 Wednesday, after Deutsche Bank analysts Brian Skiba and Matthew Kelly initiated coverage of the company with a 'buy' rating and a $45 price tag."

Why $45? Nobody but DB can figure that part out, or at least nobody I know. Why Deutsche Bank, you may ask? For the moment, I'll just list a few links you can go to and see how Canopy Group companies and Deutsche Bank have been holding hands for some time. Make of it what you will. You might want to start here, where in August DB was fined by the SEC for improprieties in the HP-Compaq merger, failing to disclose a conflict of interest. Then check out the history of Deutsche and Canopy companies here and here and here and here and here and here and here.

"The only other analyst who covers SCO is Dion Cornett of Decatur Jones Equity Partners, according to Thomson First Call. He has an underperform rating on the stock.

"Investing in SCO is like buying a 'lottery ticket,' Cornett said Wednesday. 'I think at the end of the day, the lottery ticket is not a winner,' he added. 'They will not prevail in their lawsuit against IBM.' ... Cornett believes that IBM fights to the death when it believes it's right, as it clearly does here, and therefore a settlement is unlikely."

Hmm. Linux. Lottery ticket. That reminds me of something.... Even if SCO could convince a jury it was right, IBM would win on appeal, this analyst says:

"'I think it's a stretch to think that an appellate court is going to overturn 100 years of copyright law,' he said. Cornett has a $6 price target on SCO, based on a discounted cash flow analysis."

Oh, that. The old-fashioned kind of analysis. Discounted cash flow, indeed. Of course, whoever made out like a bandit today doesn't care what Mr. Cornett thinks. The folks selling today did just fine, thanks. And as for making a mistake, well, maybe they're just playing a different game.

And as for Skiba's "analysis" that SCO could hit the jackpot, it's based in part, according to the document, on his belief that SCO, if it wins, will be able to sue millions of Linux users. Dream on. If, in some upside-down crazed legal world SCO won, nobody would use Linux any more rather than pay a dime to SCO, I'm certain. We'd all switch to BSD or the HURD or whatever new stuff those wonderful programmers come up with like magic. And SCO would be left with a legacy version of software nobody would ever touch or fix for them to time indefinite, even forever. Then they'd have two old legacy operating systems nobody wants. Those who bought today under Skiba's analysis may end up just as mad as the class action litigants in this securities case, where, oddly enough, a report by a Brian Skiba is mentioned in the complaint. His wisdom about SCO can be tasted in this excerpt:

"The IBM lawsuit and the potential for Linux licensing deals offer plenty to be excited about, while failure would render the shares worthless, in our view."

"'This is not for widows and orphans,' Skiba said of an investment in SCO. 'Hedge funds would be a more appropriate market to buy this stock.'

"Hedge funds, however, may be on the other side. Currently, almost 12% of the stock's float is short, and the days to cover short interest went up to 5.13 on Sept. 15 from 4.51 on Aug. 15."

Widows and orphans better stand clear, all right. But did they? Reuters and others reported a 38% jump, but that turned out, from all I've seen, not to have been true. But, as you know, I'm no wizard in the stock market, so I could have missed something. The highest figure I could find was 33%, but hey, this is nostalgia day, harking back to the good old days, when there was plenty of money to be made off of fools who weren't smart enough to protect their retirement years by sufficient cynicism about those Wall Street swashbucklers.

"Skiba doesn't own shares of SCO. Deutsche Bank may seek to provide investment banking services to the company."

And to cap off our cynical mystery tour, this gem, from a SCO press release today:

" The SCO® Group (SCO) (Nasdaq: SCOX -News ), a leading provider of business software solutions, today announced its ranking -- number 75 -- on the 2003 Deloitte Technology Fast 500, a ranking of the 500 fastest growing technology companies in North America. The Deloitte Technology Fast 500 rankings are based on average percentage revenue growth over a five-year period, from 1998-2002. SCO revenues grew 5,978 percent during this period.

"SCO president and CEO, Darl McBride, credits the company's increased revenue growth to a renewed focus on SCO's core UNIX business, strategic Web Service initiatives and continued commitment toward protecting its valuable intellectual property. 'As a company, we've worked hard to ensure that our company is in a cash-positive position,' said Darl McBride, president and CEO, The SCO Group. 'It's an honor to receive this type of recognition from Deloitte.'

"'Attracting enough customers to maintain four digit growth over five years makes a strong statement about the quality of a company's product and its leadership,' said Mark Evans, national managing partner of Deloitte's Technology, Media & Telecommunications Group. 'We commend SCO for making the Deloitte Technology Fast 500 with a phenomenal 5,978 percent growth rate over five years.'

"To qualify for the Deloitte Technology Fast 500, a company must be a public or private entity that is headquartered in North America. The company must have a sole focus on technology-defined as any company that owns proprietary technology that contributes to a significant portion of the company's recorded operating revenues."

You might like to compare that press release with this amendment to their September S-3, which isn't up on the SEC board yet, but is on Edgar:

"If the market for UNIX continues to contract, it may adversely affect our business. Our revenue from the sale of UNIX-based products has declined over the last eight quarters. This decrease in revenue has been attributable to the worldwide economic slowdown, lower information technology spending, and increased competitive pressures from alternative operating systems. If the demand for UNIX-based products continues to decline, and we are unable to develop new products and services that successfully address a market demand, our business will be adversely affected."

Decline for the past 8 quarters and you make Deloitte's Fast 500? I wonder which kind of "fast" they mean?

So there you have it folks, a very fast day in SCOville. And, no, this isn't investment advice. I'm just putting my research results in front of you, so you can understand the day's events and can follow along.

Let me guess. Could you use an antidote? Try this article about Linus (some gratuitous snottiness and ignorance on the reporter's part about rms, which is mirrored in the title of the article, but otherwise enjoyable, and Linus doesn't support the reporter's attempt to drag him into it) and while you're at Wired anyway, how about one on the open source method being used in many other areas besides software. Kind of like Groklaw, if you think about it.

9:15:07 AM

And They Say You Can't Change the World The Register is reporting that Israel has just acknowledged that Microsoft Israel is a monopoly, and that legal ruling means no upgrades of MS products through all of next year. They are looking into OpenOffice instead:

"The Israeli Ministry of Commerce has suspended all governmental contracts with Microsoft, and indicated that the ban will last throughout 2004. The de facto suspension means no upgrades for the duration, at a time when Microsoft is looking to roll out its Office 2003 upgrade; and the Ministry is said to be examining OpenOffice as an alternative.

"It's a consequence of a much-anticipated legal verdict: Israeli Antitrust Authority director general Dror Strum has finally acknowledged that Microsoft is a monopoly. Register readers play no small part in this remarkable story. . . . Several groups have lobbied for Microsoft to be subjected to Israel's strict antitrust legislation. But the issue was forced by the Online Freedom Foundation lobby group, whose head Oded Lavi has fought the legal battle that brings to light a hitherto unpublished agreement between Microsoft and Israel's former Antitrust Authority director David Tadmor, signed in 1999.

"The agreement specified that any restrictions imposed as a consequence of the US Department of Justice's antitrust action against Microsoft would be applied in Israel. They weren't enforced, until now. "

It all began as a dispute over Microsoft's refusal to provide Hebrew support in its Macintosh Internet Explorer browser or Office suite, thus effectively freezing Apple Computer out of the Israeli market. Register readers began writing effective letters, some examples of which are included in the story, and the rest, as they say, is history.

And people say you can't change the world.

9:13:32 AM

Groklaw's Believe It Or Not

Somebody submit this to Ripley's Believe it or Not right away: Forbes has come out with an article attacking intellectual property rights!

Mr. Daniel Lyons of Forbes Magazine notoriety, has attacked the Free Software Foundation for enforcing its copyrights and the GPL license.

Why it's positively unAmerican!

Yup. It's true, Mr. Lyons. If you choose to use GPL code in your business, you must do so in accord with the license terms. If you don't like the terms, you should not use the code.

Nobody will force you to use our code. You are free to write your own software instead.

If you steal the code, because it's free and so handy, and/or violate the license terms in other ways, the copyright owners will contact you and try to work things out, giving you the choice of either ceasing to use the code and replacing it with code you develop yourself, or releasing your code under the same terms as the code you stole. It's your choice.

But let's be clear: if you steal someone else's copyrighted code, you are guilty of copyright infringement.

Should you fail to comply, you will be sued for copyright violation. The reason for this is that copyright law is the law of the land and you must respect it. The GPL is based on copyright law, and we should all respect the law and the rights of others, I'm sure you would agree. Even corporations must comply with the law, or there are consequences. Pleading that you can make tons more money by stealing other peoples' hard work isn't a legal defense, even if it makes moral good sense to Forbes writers.

"But...sputter...but...they won't just take my money instead and let me keep using the code I stole and let me continue violating the license if I grease their palm with silver?

Correct. They will not.

You see, that isn't how copyright infringement is solved. The infringement itself must cease.

Go figure.

And to your amazement and evident dismay, the GPL does work. Courts will uphold it and companies will have to comply with it one way or another, if they choose to use GPL code rather than spending the money and the time to develop their own code. The way to avoid the terms of the GPL is not to steal it and hide it; it's to write your own code. We realize that no company, not even Microsoft, can afford to hire the numbers of programmers who write GPL code today, so their code won't be as good as GPL code and it's not free either. It's a trade off and each company will have to make its own decision.

Companies that violate the GPL do get caught and have to pay for their misdeeds. You may feel outrage that corporations aren't the only entities that have enforceable copyrights, but that is the way it is. You will have to get used to it.

It's the American way.

9:11:33 AM

SCO Tries to Use Lineo Case Against Open Source

I knew it. I knew it. I knew it. What a nose I have for these guys.

Already, SCO's Blake Stowell is pointing to the Lineo case as an example "proving" that open source is a problem.

As soon as the story broke, my first thought was to wonder if maybe Canopy went public with it so the case could be used by SCO as an example of problems with the GPL. Actually, that was my first publishable thought. Whether that happened and it's all coordinated or SCO is just coincidentally taking advantage of the case, I'll leave up to you to decide, but take advantage of it they certainly are. Here is the SCO take:

"SCO spokesman Blake Stowell pointed to the case as evidence that open-source software such as Linux needs to be handled and tracked more carefully. 'Fundamentally, there needs to be some mechanism in place to better police open source,' he said."

Evidently the only such case they could find was one where a fellow Canopy Group company was involved as the perp.

Let me get this straight. A Canopy Group company infringes an open source company's code, puts that code in their own product inappropriately, gets caught, and another Canopy Group company (that has been claiming for months that open source code isn't properly policed) says the case proves there is a problem with policing open source? Puh-lease.

They seem to have it backwards. Maybe they couldn't find any cases where proprietary infringing code was grabbed and ended up in open source code, so in their desperation, they settled for the opposite -- a case where one of Canopy's own companies, a combo proprietary-open source company, infringed open source code. And this proves open source needs to be policed? Maybe from them. It looks more like there is a problem with the Canopy Group. So, I agree. Call the police. They should definitely look into this.

Oh, that's not what they meant?

Some more details are emerging:

"MontaVista Software accused its competitor Lineo in April 2002 of selling software that originally came from MontaVista that had its copyright notices removed, said Jason Wachal, MontaVista's lead lawyer. MontaVista filed suit in federal district court in Salt Lake City. 'It appeared to us that Lineo, which was still in its original incarnation, was distributing computer software to its customers or potential customers that had code in it that appeared to be written by MontaVista but that had all of the MontaVista copyright information stripped out of it,' Wacha said. . . . The suit was settled in the third quarter of 2003, Wacha said. Terms of the settlement are sealed."

So this case didn't settle yesterday, or in October at all. According to Bloomberg News, it settled last month. But it surfaces now when Yarro, despite the court records being sealed -- meaning MontaVista can't say anything about the settlement -- nevertheless publicly tells the world all about it. He wasn't a party to this lawsuit, so why did the NY Times call and ask him about it? And more tellingly, why did he answer? And then the next day or so, SCO starts using it in its own twisted way. The whole thing does not pass the sniff test.

Normally, when court records are sealed, it's to keep the details a secret. Usually the defendant is the party wanting it kept sealed, so they don't have to tell the world they were guilty, even if they were. Yet Yarro comes out and gratuitously says that his once-Canopy Group company Lineo, the defendant, was guilty. Why did he not just say the court records are sealed and honor that? Lineo isn't a Canopy Group company now, so why would he be an appropriate spokesperson for this case now? That's what drew my suspicions in the first place. That and the fact that Google can't find any company called Hexamark Technologies, the alleged name of the alleged company in India that Yarro said Lineo outsourced the work to that he says caused the problem. Say, SCO's stock hasn't been going down again, has it?

The article goes on to quote an IP lawyer who opines that it was MontaVista that offered to settle, despite no such facts being in the public record (so how does he know, and if he doesn't know, how does he dare to say it?) in order, the lawyer speculates, to avoid having the GPL litigated in a court trial. Um...like MontaVista brought a lawsuit all about the GPL in the first place because it didn't realize it would end up in court. Maybe the lawyer was misquoted. It's possible. Then again, maybe he wasn't. If he wasn't, shame on him. And then in spite of himself, the lawyer ends up saying the GPL appears to be getting stronger "with each month and quarter that passes". No, son. It was always strong. It's just you guys who are getting weaker, as you begin to grasp what the GPL is about and what it was designed to do -- protect us from the SCOs of this world, which it is, despite SCO, Canopy, or the best efforts of all their ethically challenged FUD helpers.

A note about the SCO timeline

On February 26, 2003, Darl McBride and Robert Bench held SCO's First Quarter Financial Results teleconference, an mp3 of which you can listen to here.

There are a number of points covered regarding the company's financials, and a lot of the call was spent on the SCOsource initiative. You financial wizards may find that part of the call more interesting than I did, but what struck me after I thought about it quite a long time was something that McBride said in the question-and-answer session. He was asked what his financial arrangement was with David Boies:

"With respect to the law firm, we're not speaking publicly about our arrangement there, but I can say we have business, uh, alignment...we have business interest alignment with respect to how we're going at it, so the law firm has an interest in what we're going out and doing, and so we think that's the right way to approach it."

Now, SCOsource was under way, but SCO has claimed that the March stock plan was set up prior to any litigation plans, and this call was at the end of February, so according to their timeline, no litigation was yet in the works. But if that were the case, what would the "business interest alignment" be? If they had already planned on suing somebody, the answer might be that Boies had been hired on a contingency basis to handle the lawsuit. But if there was no contemplated lawsuit, what is the business interest alignment? It makes you wonder what the contingency was in the contingency arrangement, when Boies was first hired in January. A percentage of SCOsource monies brought in? Or was a lawsuit expected from the start?

Obviously, only they can answer. But as to whether they already had in mind to sue, see what conclusion you reach from these segments of McBride's remarks:

"Now with respect to the majority of the customers as we've gone down the SCOsource path, you know, the first blush read on this that many of us have is, Gosh, this is a scary place to go. What are people going to say, when you step up and say, Hey, wait a minute, that's my intellectual property, you need to pay me some money? And we've been pleasantly surprised that the majority of the people we talk to are actually very reasonable about it. Most of the discussions we have are very friendly. And in some, many cases we have people that have seen the press releases, the stories in the press and they've called us up and said, Hey, I'm concerned that I might be infringing here, can I sign up for a program? And so what we've done is we've taken a very friendly approach to going out and enforcing our intellectual property in the marketplace."

No one asked him if that was truthful, of course, but was it? Another question arose on SCOsource and again he was asked if they were going to take a non-adversarial approach, and McBride said this:

"Again, the response there is the vast majority of the cases it's actually been a very cooperative, very friendly set of discussions, and we're in various levels of discussions with many, many companies right now. There've really been an isolated one or two cases where people have just told us to take a hike and in those cases, you know, we'll take a different approach. We didn't bring on one of the world's best law firms to have people tell us to take a hike, and then we take a hike. So, you know, in those cases, we'll look at them differently. But again, for the 95% plus case of the people and the companies we're talking to, we're getting very positive responses."

I'd listened to this tape before, but it wasn't until recently that it dawned on me that there is an unexplained "business interest alignment" if you consider SCO's official story of its timeline, and that the timeline itself regarding when a lawsuit was being thought of is impacted by McBride's reference to being willing to go after any recalcitrants who might not pay up, and that in February at least one or two had already told SCO "to take a hike."

John Markoff at the NYTimes is reporting that Lineo, a former Canopy Group company, sued by Monte Vista for copyright infringement, has settled the case, and that Ralph Yarro admits Lineo infringed Monte Vista's copyrights. And here is the kicker: the code was GPL code.

While the court docs are sealed, the charge by Monte Vista (could there be two companies named Monte Vista?) was that their GPL code was taken by Lineo and used after they stripped off its copyright notices.

Gulp. Think IBM might be interested in this? SGI? No wonder Red Hat has asked to see every bit of source code SCO has ever distributed.

I wonder if those SCO/Canopy dudes thought it'd be safe to say Linus accepts stolen code because they do it themselves, and GPL code at that. Guilty folks generally, in my experience, believe the whole world does what they do. Liars, for example, think everyone else lies too.

Yarro blames it on outsourcing. Urm. Doesn't anybody in his companies ever actually look at their own code? According to this SEC filing, Lineo was a combined proprietary/Linux operation. I thought proprietary companies had this superior fail-safe system to make sure no stolen code ever got in, no? I wonder if Lineo offered its customers indemnification? -- All right. Heh heh. I couldn't help myself.

It seems Lineo may have pleaded innocent infringement. I didn't know Canopy types acknowledged such a thing existed. Somebody call SGI. Here's a bit of the Times article:

"Lineo was sued last year by Monte Vista, a maker of software for specialized computers used in consumer and industrial applications that is based in Sunnyvale, Calif. The Monte Vista executives said they had been notified that software their programmers had written and licensed under the GNU General Public License - the license that governs companies that distribute Linux software - had appeared, with copyrights removed, in Lineo's software. The license, which allows for the free distribution of software, still requires that the copyright notices be retained. . . .

"Canopy is now SCO's largest shareholder, with two seats on the company's board, and has played an important role, analysts say, in shaping SCO's legal strategy. 'All roads lead to Canopy,' said Laura Didio, a computer industry analyst at the Yankee Group. 'They've been pretty clever in the way they've played this.'"

Clever how? Can't this gal get one thing right? They've just been caught with their hand in the GPL cookie jar, and she says they are clever? I hope this one time she is right, in the sense that I hope all roads lead to Canopy, if you catch my drift. Yarro is quoted extensively in the article, and he doesn't sound so happy with the Lineo story or with SCO:

"'This story may speak more to the dangers and cautions of working with these outsourced companies,' said Ralph Yarro, chief executive of the Canopy Group. He added that when the incident took place Canopy was no longer the majority shareholder of Lineo. . . .

"He acknowledged that the Lineo suit did in certain ways parallel issues in the dispute between SCO and I.B.M. 'SCO picked a big fight and it flowed over to the Linux environment and we found ourselves in an awkward position,' he said. . . . Mr. Yarro said: 'I know I've been painted in a rough light. I hope that our companies are our legacy and not our lawsuits.'"

If this doesn't beat all, as my dear Grandma used to say. Think it sounds like SCO execs might be asked to walk the plank soon? And that Canopy would like to distance itself from the lawsuit? If nothing else, we understand now why Utah has been a whole lot quieter than normal.

Leaping lizards, guys, this feels huge. And by the way, do you suppose they just found out that the GPL is valid and stands up in a court of law?